Abstract
Google has been a successful company for more than a decade now. The company conducts millions of searches daily that come up with relevant results that satisfy the needs of its users.
Therefore, this paper critically analyses its operations and success. To achieve this, the paper focuses on the growth of search engines, the growth and development of Google, its strengths, weaknesses, opportunities and threats. The paper also focuses on the corporate strategy of the company and in the end, it comes up with recommendations to increase its performance in the short run and in the long run.
History of Search Engines
A search engine is a complicated tool that is used by internet users to search for information within the network. The tool operates by connecting the keyword(s) typed by a user, queries it to its database and brings out a list of results with the most relevant result being placed at the upper end of the list.
It is due to this fact that search engines have to maintain a huge and reliable database to keep up with the growth of the internet. In the year 2005 alone, Google had over 200,000 computers that acted as its database. In addition, the company reported that it had spent over $400,000 in maintaining the system alone (Hill 51). It is due to this fact that search engine companies need to have a financial model that will ensure that their operations are sustained both in the short run and in the long run.
The first search engine that was used in the internet was referred to as Archie (Hill 52). Archie was launched in 1990 and enabled users of the internet to retrieve documents and other files that were stored within the network. However, in 1993, the internet growth surpassed the capabilities of Archie. The number of websites had also increased from 130 to over 600,000 by the close of 1996. This therefore brought about the need of having a powerful search engine.
Matthew Grey from MIT came up with such a tool; the www Wanderer. However, Greys innovation was soon suppressed by the Web Crawler, a search engine that was developed by Brian Pinkerton. The Web Crawler was superior to www Wanderer in that it allowed users to view entire web pages from its search unlike www Wanderer that only gave out the title of the websites that came out of its search. In 1995, Web Crawler was sold to AOL at $1 million.
This marked the first instance that a search engine was economized (Hill 53). Later on in the same year, another search engine, Alta Vista was launched. Alta Vista was superior to Web Crawler in that is was capable of sending out thousands of Web Crawlers in its searches. As a result, the tool was capable of searching a higher proportion of the internet bringing about a more complete search as compared to its predecessor (Bahney 15).
However, the search engine failed to pick up because it lacked a financial model. At the same time, Excite and Lycos, both being search engines, were also launched. Both these engines came up with further improvements since they used algorithms to conduct their searches. This ensured that the results of their searches were relevant with regards to the keywords that the user had entered. However, due to the fact that they also lacked a financial model, they failed to pick up.
By this time, search engines did not have a business model that would enable them to earn revenue that would sustain their operations and lead them into earning profits. However, Bill Gross came up with an idea that changed all this. Gross was a software developer including Goto.com.
Bill developed this search engines as a result of the realization that spam reduced the reliability of search results of many search engines. Spam used common keywords to direct traffic to their sites. For example, a user would enter keyword such as âschoolsâ and would be directed to a porn site. Spam sites operated by including keywords on their background. This enabled them to appear as relevant results from a search.
Since Gross was developing a number of sites in IdealLab, he developed the urge to develop a search engine that would be able to eliminate spam, be reliable, have relevant results and most importantly, eliminate undesired traffic (Hill 53). To achieve this, Gross realised that it was essential to put a fee on searching. However, it was unrealistic to charge users since this will drive traffic away. The only other alternative was to charge the owners of websites.
The only way this could be achieved was to charge for keywords. This is because search engines led a huge traffic to websites thus charging for keywords would increase the amount of relevant traffic to a site.
This will not only ensure that search engines earn money but the destination websites also manage to reach their target audiences. Therefore, common keywords were to be charged higher due to their demand. GoTo.com was based on this model. However, the engine lacked two essential components to realise its success, an audience and advertisers (Hill 53).
To get all this, GoTo.com had to collaborate up with established websites. To achieve this, Gross had two options. First, he could place banner advertisements on these websites. On the other hand, he could syndicate its services and act as a co-brand. These sites would thus incorporate GoTo.com search on their interface and share the resultant revenue. Gross opted for the second model. However, GoTo.com had to pay goodwill to established sites.
For instance, GoTo.com paid AOL $50 million to incorporate its search box on Netscape, AOL and CompuServe (Hill 54). GoTo.com was launched in 1998. At this time, it only had 15 advertisers and was experiencing more costs that earnings. However, with time, the site started to attract a huge traffic. This came about as a result of the realization of the importance of keywords by website owners. As a result, the prices of keywords also grew.
A keyword such as software was auctioned at 59 cents (Hill 54). By the year 2000, GoTo.com was reaching over 60 million users. This was approximately 75% of the internet users in USA (Hill 54). It also had close to 50,000 advertisers. This made the GoTo.com to be the leading search engine in the internet. GoTo.com became one of the few companies to turn into profitability after the bubble burst. The company earned net profits of $20.2 million and $73.1 million in 2001 and 2002 respectively.
However, despite the fact that GoTo.com had its own website, much of the traffic that the company had, was from affiliates. This conflict of channelization was the main reason that many affiliate companies sought other syndicate companies and dropped GoTo.com. In 2002, AOL dropped GoTo.com that had changed its name to Overture, due to the above reasons. At the same time, Gross hoped to merge with Google, an upcoming search engine company that was growing rapidly. However, these talks did not materialize (Kaplan 61).
Google also commenced its own pay-per-click advertising services. Overture sued the company on the grounds of violation of copyright. However, at this time, it was evident that Overture was losing the command that it previously had since more and more traffic and advertisers were now turning to Google.
This was despite the fact that the Overture was still profitable. To worsen the situation, after dropping Overture, AOL signed up with Google. In addition, other search engines, after realising that pay-per search was profitable, put much more emphasis on the industry. This included Yahoo and MSN. In June 2003, Yahoo bought Overture for $1.63 billion. In 2004, Google settled the copyright dispute handing 2.3 million shares valued at $330 million to Yahoo.
The Growth and Development of Google
Google came about from a research project that Larry Page, A PhD student at Stanford University, was conducting in 1996 (Hill 55). In his research, Page identified that it was easy to follow the pages that were linked to a webpage in the forward direction. However, backtracking the same was quite difficult. In his research, he believed that coming up with a backtracking methodology would be essential. This project was referred to as BlackRub.
However, due to its technicality, it was essential for Page to introduce Sergey Brin, a mathematician, into the project. Brin was able to develop an algorithm that enabled them to rank web pages according to the other pages that it was linked to and the corresponding sites. When the system was made to run, it came out with better results than those of Alta Vista and Excite in terms of relevance and speed. In addition, they realised that their results would become better with an increase in the size of the internet.
Thus, this new search engine would be able to sustain the growing demands of the internet. In 1996, the two launched their search engine on Stanfords network. They named it Google, after googol the word that comes after 1 is followed by 100 zeros (Lazer 16). With this new revelation, Page and Brin tried to licence their new product. They approached companies such as Excite and Yahoo who refused to be part of the project since search engines at that time was not a wise investment.
People at that time wanted a tool that will attract users to their websites not directing them away from it. By 1998, Google had grown remarkably. It was conducting over 10,000 searches daily. Due to this, the search engine has surpassed its resources. Page and Brin thus realised that in order to keep their search engine going, they needed to gather more funds. This led them into forming a company with Page being the CEO and Brin being the president, and looking for investors in Silicon Valley.
On this course, they managed to convince Andy Bechtolsheim to contribute $100,000 into their company and Amazon founder, Jeff Bizos, to contribute another $1 million into the company. These funds were used to increase the number of servers and bandwidth of the search engine in order to cope with its increased demands and the growth of the internet.
By 1999, Google had over 40 employees and was conducting over 1.5 million searches daily. However, the company was spending over $500,000 per year to maintain its services. It was thus a high time that the company developed a business model that would earn it revenue. Text ads was the first venture that Google conducted.
Here, the company sold keywords to brands. These brands appeared beside the results of relevant search with regards to the keywords that a user had typed. The company thus was paid following the model CPM model that was based on a thousand views. Google also wanted to experiment with banner ads. However, this plan was not realised as a result of the bubble burst. At the same time, Brin and Page paid attention to the business model of GoTo.com and realised that its model was capable of sustaining their operations.
However, while adopting the model, they decided not to incorporate its commercial perspective. GoTo.com results were biased in that the advertisers who paid more were ranked on top of the search results. This prompted advertisers to pay more. Brin and Page on the other hand wanted to give desired results to their users. Therefore, their search results were based on relevance and on the money paid by advertisers.
To meet all these demands, the Googles webpage was designed such as the left side contained the unbiased results while the right hand side contained ads. This ensured that they satisfy the needs of both stakeholders; their users and advertisers. An ad that received more clicks was ranked higher on the list.
Therefore, users and not the company managed the advertisements. At the same time, Google used a different model to auction off its keywords. Advertisers only had to pay one sent extra to win an auction. Thus, Google keywords were cheaper as compared to those of GoTo.com (Lazer 22).
Google was now growing at a tremendous rate. By 2000, it supported over 18 million searches a day. When AdWords was introduced, the number of searched increased to 60 million. When the second version of AdWords was introduced, Google became able to support the pay-per-click model increasing its revenues even further.
In 2004, the company announced that it would go public and on its IPO, the company managed to generate $1.7 billion, the largest internet IPO at that time. The company also ventured on a variety of products to increase its revenue and market share. By 2005, Google had an annual revenue of $6.4 billion and a profit of $1.47 billion. It was responsible for 48.7% of all searches conducted in USA and had a market share of 57% in terms of revenue.
SWOT Analysis of Google
To determine the performance of Google with regards to the environment that it is operating in, it is essential to conduct a SWOT analysis. This analysis focuses on the strengths, weaknesses, opportunities and threats that the company is facing. The strengths and weakness are used to determine its internal operating environment while the opportunities and threats are used to determine the external environment.
In the course of its operations, Google has developed a number of factors that have acted as its strengths. One of the major strengths that the company has managed to have is proper financial management. Since its inception, the late 1990s and the period following the bubble burst, Google has been handling its finances in an effective and efficient manner. In 1998, the company requires capital in order to sustain its growing activities.
To achieve this, Brin and Page formed a company and they managed to get funds from individuals and investors in Silicon Valley including Andy Bechtolshein who invested $100,000 in the company (Hill 56). This money was used to expand the data storage and bandwidth of the company to sustain its increasing needs and the growth of the internet.
By 2006, Google reported to have over 200,000 Linux computers to sustain its servers. Google use some of its other funds in research and development programs. This ensures that the company comes up with better products and improve the status of its existing products in order to meet the needs of its stakeholders. This has been essential in ensuring that Google remains a leader in the search industry (Kaplan 67).
Desirable marketing skills also act as another strength to the company. During the early years of operations, Google was growing at an incredible rate. However, the fact that it lacked a business model posed as a great barrier to its success. However, after the incorporation of the pay-per-click model, the company has been able to increase its revenue. This rise in revenue is attributed to the fact that Google has a strong marketing strategy.
While putting up ads on its webpage, Google always ensures that users first get their desired results. This in turn leads to consumer satisfaction, a factor that makes the company to even have more traffic on its site. In the process, many advertisers view Google as the best platform to advertise their products.
In addition, the huge amount of traffic has increased the price of keywords. This has an overall effect of increasing the revenue that the company earns. The availability of funds in turn ensures that the company shall be operational in the short run and in the long run.
The fact that Google has a wide product line also puts it at a competitive advantage over its rivals. Starting as a search engine, Google now has a number of products that are not entirely related to its background. These products are developed by its research and development efforts. Examples of these products include Gmail, Google Maps, Google Earth, Google Desktop, Google+, Orkut, Blogger and Google Money.
The company also plans to install free Wi-Fi networks in major cities. In addition, Google has developed other applications that are similar to those of Microsoft despite the fact that they are for internet use.
This includes applications such as Writely and Google Spreadsheets that have a lot of similarity to Microsoft Word and Spread Sheets respectively (Hill 57). This brought about a lot of wrangles with Microsoft. Despite the fact that not all of these products have picked up in the market, they have played a critical role in expanding Googles market coverage.
Google also has a strong corporate strategy that is based on the values, mission and principles of the company. This ensures that the company operates in an effective and efficient manner hence being capable of achieving both its short term and long-term goals and objectives (Bahney 40).
From its organization structure to the support that it gives its employees, Google has become on the most efficient internet companies in the world. Driven by its main mission; organizing the worlds information and make it universally acceptable and useful, Google has been able to satisfy the needs of its users. This has made its brand name to gain a positive reputation among internet users. This makes the company to command a huge market share and stand at a competitive advantage over its rivals.
However, Google has one main weakness. Despite the fact that it has a huge product line, many people view that this growth is without direction (Hill 59). These people argue that with all the new products that the company is coming up with, Google is not sure what direction it wants to take.
Others state that the company does not give enough support to its ecosystem partners. Another weakness that can be viewed on the company is the fact that it is operating in a secretive manner. This makes it hard for people to know their short term or long-term goals.
However, the company has a great future ahead of it. This is due to the number of opportunities that the company has. It is easy for a firm to enter into the internet industry. However, to maintain proper search engines and indexes, a firm needs to invest a lot of capital. At the same time, the services that are offered in this industry can be substituted easily although due to the high level of competition, it is hard for a new firm to grow.
Given this analysis and the fact that Google is the leader in the market, it is hard for other established companies such as MSN and Yahoo to catch up with Google or for new entrants to prosper (Hill 65). Brands and advertisers have realised that pay-per-click is an effective mode of advertisement as compared to traditional advertisement on the media.
This form of advertisement is also cheaper as compared to traditional mass media advertisement thus small entrepreneurs and businesses are not left out. It is due to this fact that search engine advertisements are expected to grow. The value of ads posted on the internet in 2006 was approximated to be $26.5 billion an increase from $15.5 billion in 2004 (Hill 64).
Therefore, as this industry grows, Google is expected to be the biggest beneficiary since it is the leader in the industry. At the same time, the company has the opportunity to expand its services into other markets. The social media is another emerging market that is expected to boom in the next few years. As a result of its reputable brand name, Google can easily support Orkut and Google+, its social media sites to be sustainable in this new market.
Competition is perhaps the major threat that Google is facing in its current operations. Its major competitors are Yahoo and MSN respectively. These companies have been involved in research and development activities in order to match up the operations of Google. Although Google is still the leader in the market, the availability of new advertisers may change the situation and opt for cheaper prices for services.
At the present moment, the price of keywords has reduced. Google therefore needs to improve the quality its services in order to maintain its customers and attract new ones. This will ensure that the company maintains its profitability and sustainability in the short run and in the long run.
Business Level Strategy
Business level strategy comprises of a mix of actions that a specific business uses in order to enhance its products in order to ensure that it stands at a competitive edge over its rivals within the industry (Kaplan 66). In the course of its operations, Google has come up with a number of business level strategies that have managed to make its products to be unique to its users hence meeting their tastes and preferences.
In formulating these strategies, the management of the company normally analyzes who the strategies are meant to serve, what are their present and expected future needs and who best can the company satisfy their needs. To achieve all these, Google has come up with a number of concepts.
In the course of their operations, many companies use one of the following methods of business level strategy. These are:
- Cost leadership
- Product/Service differentiation
- Focused cost leadership
- Focused Product/Service Integration
- Integrated cost leadership/differentiation.
In the course of its operation, Google uses the fifth method, integrated cost leadership/differentiation as its main business level strategy. This has mainly been exhibited by the manner in which it produces and markets its products and services. As stated earlier, Googles operations are consumer driven.
Therefore, to achieve this goal, the company has always strived to maintain a good relationship to its customers. It is due to this fact that the company became a leader in ensuring that the results of its search engine are relevant. Initially, the results of other search engines, GoTo.com being an example, focused on commercial gains. However, Google ensured that the results of their engine should meet the needs and desires of its users.
At the same time, to ensure that their users are satisfied by its services, the company divided its webpage into two. The left side comprises of the search results while the left side contains the advertisement. At the same time, when Google incorporated the pay-per-click method, its key words were auctioned at a relatively low prices.
Furthermore, the visibility of advertisements on its webpage depend on the number of times they have been clicked by users and not the amount paid by their advertisers. It is due to these facts that Google has managed to outcompete its rivals in the search engine industry. At the same time, the company has made its services to be available on PDAs and mobile phones in order to keep up with pace with the growth and development of technology and the needs of its consumers.
Corporate Level Strategy
Corporate level strategies on the other hand are actions that are taken by the management of an organization by incorporating a mix of business activities in order to stand at a competitive edge over its rivals (Kaplan 66). To achieve this, Google has come up with a number of different products in order to increase its market reach and boost its revenue. Google commenced its operations as a search engine company.
In the process of providing high quality services to its customers, the company managed to attract and maintain a lot of users and advertisers. This was a key move in the development of its brand name in the market. Therefore, to ensure that its activities are sustainable in the long run, Google came up with an expansion strategy that was outside the scoop of its traditional business model.
It is in this process that the company came up with services such as Google Maps and Google earth that enable people to search for places and geographical features online. The company also came up with Gmail, a free emailing service. The company also came up with applications that resemble the applications that are found on Microsoft Office.
These applications include Writely and Google Spreadsheets that have a lot of similarity to Microsoft Word and Spread Sheets respectively (Hill 57). Since 2004, the popularity of social networks has grown. To ensure that it has a share of the market, Google enhanced its own, Orkurt that has a large market share among Brazilians based in USA, Brazil and India.
Google has also been involved in several joint ventures. During the early 2000s, Google partnered up with AOL to offer its searching services. In 2005, this contract was renewed and Google invested a sum of $1 million into AOL in order to support its services (Hill 58). In 2006, Google partnered up with Fox Interactive (Hill 58). In this partnership, Google was supposed to be advertising on Foxs online network.
One of the main advertising campaigns for this deal was the advertising of MySpace and other social networking companies. Google has also improved on the nature of its services. Apart from searching for documents, Google search now enables users to search for any digital media that may be available online.
This includes eBooks, pictures, videos, music files and so on. At the same time, Google has a wide array of products. These products not only work to increase the revenue of the company but they also improve its brand recognition and loyalty. All these business diversifications aim at increasing the market share of the company, its revenues and developing its brand name.
Organization Structure and Control
The company has a decentralized organization structure that is flat. Employees are divided into teams with each team working on one or several projects at the same time. This ensures that there is effective communication within employees, an essential factor in ensuring that work is conducted effectively and efficiently.
Google also values creativity and innovation from its employees. The company gives its employees 20% of their work time to spend on things that they like. This is an essential factor for product development. As a result, Google has always coming up with new products and improving its current ones to satisfy the needs of its users.
The organization is also driven by its vision and values that have been developed by its employees (Hill 58). The vision of Google is to organize the worlds information and to make it universally acceptable and useful (Hill 58). Thus, in its operations, Google is not driven by the need of monetary gains but also to satisfy the needs of its users. This is a core philosophy of the company. Another value of the company is to focus on its users in the belief that other people will follow the same directions.
This has made the company to separate the interests of its users and that of advertisers by ensuring that searches are relevant while advertisements are contained on the right hand side, clear from the results. This makes users to appreciate the services that they receive from the company. Another value that has made the company to be successful is to launch early and often (Hill 58). This has made the company to always come up with new products and services in order to widen its market.
The company has also developed a number of control mechanisms that enhance its operations. To ensure that its product development strategies are effective, the senior employees of the company normally decide when the project should go public. However, before this is done, they have to present the project to the senior management (Page and Brin) for approval. This procedure ensures that the product fits the companys description and the market desires.
Conclusion and Recommendations
Google has come up from humble beginnings to be a leader in the internet industry. To achieve this, the company has come up with a vision, values and strategies that have ensured its sustainability in the short run and in the long run. Therefore, to maintain its operations, it is essential for the company to come up with better products and to improve on its current ones in order to achieve consumer satisfaction. This will ensure that the company stands at a competitive edge over its rivals and remain to be a leader in the internet.
Works Cited
Bahney, Anthony. âDonât Talk to Invisible Strangers.â New York Times 21st May 2010. Print.
Hill, Jones. Theory of Strategic Management with Cases. London: Cengage Learning, 2007. Print
Kaplan, Andreas. “Users of the World, Unite: The Challenges and Opportunities of Search Engines”. Business Horizons 53.1 (2010): 59â68. Print
Lazer, Wilfred. Social Marketing: Perspectives and Viewpoints. Homewood: Sage, 2009. Print.