Introduction
Google Incorporation is one of the largest internet-based companies in the world. The company’s headquarters is in California. The company deals in areas such as software vending, search engine, and internet marketing. In the recent past, the company has added cloud computing to its products line. The company has grown through product differentiation, acquisitions, and merges in the last ten years.
The main competitors of Google are Yahoo, AOL, Microsoft, and LinkedIn, which have the ability to offer alternative perfect substitute to customers who may be unsatisfied with products offered by Google.
The company successfully used flexible sourcing, retail distribution, and product focused differentiation to survive the impact of these competitors. As at the end of the year 2013, Google had the largest market share of 66.7% which was growth by 4% from 63.7% in the year 2010 (Gamble, Peteraf and Thompson, 2015).
Google utilized retail distribution (software vending and internet marketing) in the recent past to further expand its presence in markets like Japan, China, and Europe. It applied product differentiation strategy to expand and position itself as search engine.
Google’s scope of operations was characterized by online retailing of different internet based products targeting individuals, corporate, and government institutions across the globe market segments. For instance, Google created renowned brands for a number of products within its software vending service.
Google applied a series of grand strategies such as concentration, market development, product development, vertical integration, market penetration, and online retail distribution strategies to expose its numerous products across the globe as the most competitive brand.
For instance, Google managed to expand its markets outside North America within the first two years of inceptions besides launching a series of new products such as internet marketing and software vending across the globe.
Strategic Issue
Analysis of Google Incorporation Strategic Capabilities
Google has a number of resources that have contributed to its success in the global market over the years. In order to ensure business sustainability, Google has concentrated the focused strategy through clear definition and targeting of specific market segment for its online based products.
The strategies are achieved through provision of high quality and unique internet based products, effective distribution and secure network, individual internet user segment, and variety of the internet based products.
Despite the success of these strategies, Google is threatened by its competitors with more or less similar approach in doing business within the Internet Information Providers industry. For instance, Yahoo, AOL, Microsoft, and LinkedIn threaten to reverse the gains that Google has made in the Internet Information Providers industry.
Strategic issue
As a prerequisite for sustainable organization performance, the strategic issues that Google is currently facing pivot around the most appropriate market that the company should focus on or neglect in order to survive competition.
Under this strategic issue, Google currently faces the dilemmas of critical focus on the most reachable software market, potentials and threats of entering the stratified software market, potential of re-branding its current software and internet marketing brands, and the best strategies of increasing visibility without appearing as a copy cat of the main competitors.
Therefore, what are the best strategies that Google should focus on to survive competition in the dynamic Internet Information Providers industry? In order to respond to this question, the following sub questions will be answered.
- Should Google re-brand or introduce more brands to its current product line?
- What strategy will be necessary to properly differentiate the Google’s brand?
External Environment Analysis
Porter’s five forces analysis is necessary for Google as it assists in comprehension of the market strengths and weaknesses. Although Google has been a household name in the global internet information providers industry, there are several players that have limited its competitive advantage in the industry. The five forces determining the competitive advantage of companies operating within the industry are discussed below.
Industry competitiveness analysis using Porter’s 5 forces model
Threat of entry
It is very difficult for a new entrant in the Internet Information Providers industry to successfully create a strong brand that can challenge dominance of Google, Yahoo, AOL, Microsoft, and LinkedIn among others. It would require massive capital for an aspiring investor to outperform their business prowess.
Therefore, a new entrant may face difficulty in increasing brand visibility and cutting a piece of the market share. Since the Internet Information Providers industry is characterized by the ability to create high quality brands, a new entrant will have to build a following from scratch. This requires a lot of resources.
Threat of substitutes
In the internet marketing and software vending segments within the Internet Information Providers industry, threat of possible substitutes is very strong since most of the products are customized to perform specific functions, thus, rarely have substitutes.
Yahoo, AOL, Microsoft, and LinkedIn have the ability to offer an alternative perfect substitute to customers who may be unsatisfied with products offered at Google Incorporation. Unsatisfied customers, therefore have other alternatives from where they can get the products traded by Google. However, imitations may threaten the market of new or current players.
When the counterfeits softwares make it into the mainstream market, the revenues of genuine companies will decline. In order to remain relevant, the Google Incorporation has established a unique market for its customer through tailored optometry internet marketing and software products that are customized.
Suppliers’ bargaining power
In the Internet Information Providers industry, the influence of the suppliers is highest when large volumes of softwares are purchased by a service provider. When the influence is high, profitability of the establishments in this industry is low since the cost of creating and licensing some of the products is very high.
Since suppliers within the Internet Information Providers industry operate at local and international levels, their influence differs. For instance, China, India, and Japan suppliers the largest volume of softwares that Google integrates in its business platform to offer fast and reliable search engine. Yahoo, AOL, Microsoft and other industry players have more than 1000 suppliers each.
The partnerships between independent manufacturers and vendors of softwares reduce the power of the suppliers in this industry. Google Incorporation has endeavored to use its deep reservoirs as a strategy for balancing the supply forces in the fragile software vending and internet marketing sectors of the US and across the globe.
Buyers’ bargaining power
There is strong power in the fragmented internet marketing and software vending segments which are indirect and direct to customers. Despite the fact that these search engine businesses have very strong brand names; the buyers in this sector have the power to influence the prices for the products since there are a variety of services to choose from.
The power of the buyers is high since this industry is characterized by high competition. Therefore, each company considers the perception of their customers before setting prices in order to survive competition. Fortunately, Google has been consistent in maintaining their prices at half of the average prices of other brands due to global coverage and high economies of scale.
Rivalry
There are several brands operating in the same industry with virtually all of them dealing with a variety of search engine products and services. Players in the industry must be careful to survive any aggressive move by a competitor through creating a flexible brand name and constant product diversification. For instance, Yahoo provides the biggest competition to Google due to its big market share and expanded network standing at 30%.
With many customers looking for good value for their money, quality in service delivery has remained the main basis upon which customers are making their final decision to purchase products in the volatile Internet Information Providers industry of the US and across the globe.
All the players in the industry are putting measures in place to ensure they attract more customers and therefore expand their market share through creation of a smooth supply chain, diversification, and brand positioning. In line with this, Google has created multiple brands from its internet marketing and software vending products.
Key Success Factors Within the External Environment
Strong brand
Google has established a brand image that enables it to attract customers with less effort as opposed to most of its less established rivals. The entrants have to invest heavily in promotion and advertising for them to attract new customers and maintain their customers. The established brand image has enabled the company to cut on its cost and get increased levels of profitability.
Steady commitment to quality
Strong commitment to quality and product innovation enables the company to get the right experience for their customers. This has been possible through the recruitment of employees with the right skills and knowledge. These employees are further trained to understand the company production strategies. Moreover, the company conducts more market research to ascertain customer thoughts and changing demands.
Expanded market
Google has an active presence in all over America with an expanding presence in all other continents. In the past five years, revenues from sales doubled annually and the company expanded steadily.
Market experience
Having been in the Internet Information Providers industry for over 10 years, Google has acquired enough experience to compete favorably in the industry. It has had sufficient time to learn from its weaknesses and develop long-term strategies that will anchor it through the future of the market.
Industry Analysis
Industry Profile and Attractiveness
The Internet Information Providers industry has experienced steady growth as more customers embrace renowned brands such as Yahoo, AOL, Microsoft, and LinkedIn. The global Internet Information Providers industry has an estimated market value of over $200 billion.
The US, Asia, and Europe represent 76% of the market share. Despite the economic swing of 2007-2008 financial years, the players in this industry managed to recover and are currently experiencing an average growth of 20% annually.
At present, the Internet Information Providers industry command 18% of the total market value of the consumer internet purchases across the globe. The market share is anticipated to expand further to 22% by the year 2020 (Gamble et al., 2015). The search industry at present is controlled by Google, Yahoo, AOL, Microsoft, and LinkedIn, who have managed to establish a household name for their brands.
Moreover, promotional services adopted by these companies have spurred the growth of internet service market across the globe. In addition, adoption of efficient and reliable technology in the marketing of these products positively skewed the market to the advantage of these internet based giants.
Based on the annual growth and market share, the incumbents are positioned to benefit in the future because the industry is highly attractive, especially in the emerging markets in Asia and Africa.
Industry structure
The Internet Information Providers industry is fragmented because there is no single enterprise with large enough shares to determine the industry’s direction. There are about ten major companies in the industry and the four major players have about 85% share combined and the rest of the industry is made up of small private-owned companies.
The largest, most important player in the industry is Google who currently holds 67.5% of the market share on its own. The second largest player in the Microsoft Company with an estimated 18% market share, followed by Yahoo with a 16% global market share (Gamble et al., 2015).
The industry is very competitive because these companies offer similar products and trade within the same platform. Because of this, the basis for competition in the industry is price followed by product design.
There are five success factors that are the most important to this industry, which include contacts within key markets, guaranteed supply of key inputs, ability to alter goods and services in favor of market conditions, production of services currently favored by the market and a highly trained workforce. The industry is heavily influenced by the state of the economy and consumer’s disposable income.
Growth over the past 5 years has come from a post recession increase in consumer’s disposable income. The recent recession is also a good example of this industry’s sensitivity to disposable income as 2011 saw a 27.9% decrease in revenue as compared to 2010 (Gamble et al., 2015).
Google and other competitors operate in the oligopolistic market structure. The industry has unique operational strategies which can be equated to the ideals of oligopolistic market, characterized by few competitors dominating the global search engine, internet marketing, and software vending markets.
Strong commitment to quality and product innovation has enabled these companies to get the right experience for their customers. Moreover, the companies conduct more market research to ascertain customer thoughts and changing demands. For instance, Google has consistently increased its production modification and diversification of products in the market instead of reducing output with intent of increasing prices.
There are few competitors who dominate the industry such as Google, Yahoo, AOL, Microsoft, and LinkedIn among others. These companies control the industry. The Walt Disney Parks and Resorts Worldwide Incorporation has the largest market control of 24% with the other companies sharing the rest of the market (Gamble et al., 2015).
Since the industry is dominated be few global brands, it is very difficult for a new company to enter in this market and breakeven since the competitors benefit from economies of scale. Besides, the capital requirement for entry is very enormous for a new entrant.
Most of products and services offered by Google and its competitors are perfect substitutes and tend to have similar price ranges due to standardized operational costing and targeting strategies. Since these companies target similar customer segment, they have limited alternatives in terms of multiple pricing.
The companies use self advertisement and other forms of media to market different products. The self advertisement is possible due to their global brand image and active presences in the major markets across the globe.
The industry structure affects the strategies used by Google and its competitors in terms of pricing of products and customer segmentation. Since the main competitors offer perfect substitute products, Google has to ensure that its prices remain competitive to avoid losing customers to some of the competitors.
Besides, the company has to constantly remodel and integrate its products to maintain its current top position, which can easily be taken by the few giant competitors. Since the market structure is oligopolistic, the financial performance of Google has been stable and predictable since it has been able to earn very high profits since the barriers to entry such as large capital and logistic support blocks new entrants from penetrating the market.
Besides, the company has been able to use product differentiation strategy by offering series of brands from similar product category to ensure that the revenues of the company are above that of its major competitors.
Company Situation
Financial Standing
The financial standing of the Google Inc. has fluctuated significantly between 2008 and 2012. From the balance sheet, it can be observed that the total assets grew from $2.467.12 million in 2010 to $3,663.10 million in 2013. Further, the liabilities rose from $961.82 million in 2010 to $1,242.50 million in 2013. Also, it can be noted that the value of equity followed a similar trend.
It increased from $1,505,293 million in 2010 to $2,420.70 million in 2013. The highest growth rate was attained in 2008 where sales grew by 21.75%. The least growth rate was attained in 2012 where sales decreased by 5.30%. During the global financial crisis that is in 2009 sales grew by 1.56% only (Gamble et al., 2015).
Financial analysis
Profitability
Return on assets
The return on assets improved from 29.79% in 2010 to 33.43% in 2011. It declined to 21.33% in 2012. This implies that the amount of profit generated from a unit of asset decreased over the period.
This shows that the profitability and the efficiency in the utilization of the assets of the company declined over the period. This could also be a signal that the property of the company have dilapidated, thus, they cannot engender a considerable amount of returns.
Return on equity
The values of return on equity were high and they improved from 48.82% in 2010 to 54.62% in 2011. However, in 2012, the value dropped to 32.28%. The high values promises the shareholders high returns for their investments. The declining amount of return on equity can also be caused by the increasing amount of long term debt. An increase in debt results in an increase in interest expense.
Liquidity
Current ratio
The current ratio was fairly stable during the period. The value of the ratio was 2.56 in 2010 and 2.54 in 2012. Thus, it can be observed that the company can adequately pay the short term obligations using current assets. This shows that the company has a sound financial standing.
Working capital
The working capital rose from $773,605 million in 2010 to $859,371 million in 2011. The value rose further to $1,042 million in 2012. It implies that the value of current assets exceeds the current liabilities. The two liquidity ratios were stable during the period. It shows that the company is effective in liquidity and working capital management. This gives confidence to the debt and capital providers.
Leverage
Debt to assets
The value of debt to total assets was stable during the period. The ratio was 0.3899 in 2010 and 0.3880 in 2011. The fractions imply that the percentage of assets that are funded using liability remained stable during the period. The ratios also show that the company maintained a low leverage level during the period.
Debt to equity
The debt to equity ratio was also stable during the period. The value of the ratio was 0.639 in 2010 and 0.6341 in 2011. It is a suggestion that about 63% of the assets of the company are proactively funded through the debt option.
The two leverage ratios show that the Google Company has a low debt proportion in the capital configuration. This gives the company room to take more debt that can be used or growth and expansion. Thus, the company has not fully exploited its potential. The growth prospects will translate to better performance in the future.
SWOT Analysis
Strengths
The stable and management team comprising of directors and several managers is instrumental towards providing necessary support and guidance in provision of software vending, internet marketing, and search engine products to customers and reviewing current operational strategies in line with the demands of their clients at Google.
For instance, the management team introduced the internet marketing service in response to the demands of the clients. This has enabled Google to fund different business project initiatives at affordable loan repayment interest rates.
Google also enjoys a wide network and subsidiaries in the US and several representative offices in different regions outside the US. This is important in attracting more customers in those regions where the company is yet to reach full potential. Besides, the numerous branches have improved its products visibility and accessibility.
Google has increased own software vending and internet marketing business in the last few years, particularly in Western Europe and North America. Company owned software vending and internet marketing products have become growth drivers and important distribution points for the company.
The vivid presentation of Google brands supports differentiated perception by consumers beyond their product experiences, further strengthening the brand image. Moreover, the establishment of a strong and reliable internet marketing product by Google represents a major growth for the company. The other strength of Google is efficient customer relationship management strategy.
Weaknesses
Google has more presence in the US than other parts of the globe. Specifically, unlike its main competitor Yahoo, Google has limited presence in Asia. Thus, the company does not enjoy the substantive demand in the global market as its customer catchment area is restricted outside the expansive Asian market. Besides, the focus of Google is more on customized internet based brands and products.
This is counterproductive in terms of revenue generation since the majority of its customers are small businesses and private individuals who cannot operate in the customized platform. Besides, Google has high inventory cost since it software development is very expensive to create and maintain.
Managing some of the research and development projects may not be sustainable in the long run if the annual turnover reduces at Google. As a result of these weaknesses, Google has not been able to efficiently penetrate the small business segment within its Business-to-Business model of operation.
Google focus on quality products has compromised its ability to incorporate views of a section of its consumers, such as addition of more search languages.
Opportunities
Google has an opportunity to expand its scope to cater for expanded product and service lines since its asset base is strong enough to sustain any growth in the market. This opportunity will help in boosting Google’s revenues and leadership position in the global Internet Information Providers industry. As a result, Google will be in a position to double its current revenues and increase the customer base.
The company’s global presence and strong performance in most regions demonstrate that it can be successful in nearly all countries of the world. It is on this ground that Google plans entry into the regions where its presence is not yet felt. Secondly, working in collaboration with subsidiary companies may enable ease of entry into new markets.
Threats
The main threat to the survival of Google is the competition from counterfeit products that may act as direct substitute to its brands. Thus, the expansion and market penetration strategies that Google proposes are likely to face opposition if these fake products are expanding their market share. Google is faced with fierce competition from its rivals, which requires adoption of more vigilant strategies.
The soaring demand for software and integrated internet marketing applications across the world may prompt suppliers and independent producers to increase the prices, resulting in high costs of production and lower levels of profitability. Political issues in different markets, such as control of internet accessibility in some countries in Asia and Africa may threaten the company from achieving its profitability objectives in the market.
Generic and Grand Strategy Recommendations
In order to remain competitive, the company should implement focused product differentiation strategy by applying concentration, market development, product development, vertical integration, market penetration, and retail distribution as grand strategies.
Summary of industry ratio
Product concentration
Google should ponder concentration to its products in countries which do not have strict laws that protect the business, when expanding further to other foreign markets, especially in software vending and internet marketing product segments. Countries like China do not have strict rules which protect business entities from being copied by competitors.
Objectives
- This will help in safeguarding its products’ brands and making sure that it targets specific market segments.
- In the process, the company will gain a fair share of the current market controlled by Chinese search engine companies.
- It will also ensure that Google introduces measures in its operative process that would make it distinct in the market from any firm.
Application and justification
The introduction of product concentration should be applied while ensuring that the targeted markets, especially in Asia, have customized products that are unique to that region.
The key performance indicator will be increased revenue in the Asian market by 6% in the first year of implementation and 10% thereafter. Therefore, product concentration will position Google as a strong incumbent brand in the global Internet Information Providers industry.
Vertical integration
Google may partner which medium businesses retailing products similar to those of its competitors. For instance, the company may partner with private programmers and software developers to boost its current product brands.
Objective
- The objective of this recommendation is to expand Google’s market and make it easy for customers to access the products.
Application and justification
This objective can be achieved through created on in-house production, supply chain, and marketing strategies for the software vending through partnerships with private software developers. When properly implemented, the company is likely to counter the strategy of its competitors, such as Yahoo, of reaching the customers through proxy business platforms.
The key performance indicator will be reduced inventory cost by 10% in the first year of application since costs related to running the business are expected to drop. This strategy takes some initial costs to develop the integration concept but the advantages are ability to legally protect the product, creation of some barriers to competition, and general promotion of customer loyalty.
Innovation
Cost leadership strategy is vital in business management, especially in an industry with stiff competition, such as Google.
The company may penetrate the African and Asian markets further through introduction of customized products that target different market segments such as direct customers through an innovative approach. The objective of this recommendation is to adopt the market leadership strategy to improve Google’s product quality and appearance.
Objective
- This objective is achievable through creation of different high quality products and distinctive brands.
Application and justification
As a result, this venture will develop a cumulative experience, optimal performance, and product availability through application of alternative technology and human skills. The key performance indicator for this strategy is the ability to create a new product, thus increased number of customer ratings by 3% after the first year of implementation.
An improved approach to product management through diversification will improve the visibility of Google brands. The buyer will make an effort to learn the Google’s values, vision, challenges, and operating environment. Such cooperation will turn new brands into a competitive advantage instead of a cost.
Operational efficiency
Operational efficiency and market niche provide an indication of how well the company manages its resources, that is, how well it employs its assets to generate sales and income. It also shows the level of activity of the corporation as indicated by the turnover ratios. The level of activity for Google has remained relatively stable despite threat of competition, constant change of taste, and varying preference.
Objective
- To ensure that the company streamlines its operational costs.
Application and justification
Through implementing this proposal, the company will reduce its wage bill and seal cost loop holes.
Consumer Centricity
Properly designed online marketing and product distribution management facilitate the success and sustainability in online marketing. To increase credibility and maintain professionalism, the current channels of reaching the consumers at Google should be tailored to encompass processes and features that flawlessly facilitate a healthy and a lifetime relationship between the business and its clients.
Objective
- The new development elements that the company should incorporate include trust, liability acceptance, distribution, fair retribution process, and passing accurate information to target audience in order to restore confidence within these networks.
Application and justification
Essentially, the success of e-marketing depends on proper alignment of a functional team that is responsible for the creation of flexible and quantifiable measurement tracking tools for periodically reviewing results. This strategy will ensure that the business is sustainable.
Strategic justification
The above recommendations may become the new blueprint for sustainable expansion, cost management, and product development for Google since the company already has a global appeal and deep capital reservoir.
Through implementation of the recommendations, the company will be able to expand its current market share through competitive pricing, innovation, and multiple-branding of its product. As a result, Google will increase its competitive advantage over Microsoft, Yahoo, and other competitors.
Conclusion
Generally, Google has been largely successful in the market, and bears ability to competently survive in the market. Incorporation of the Porter’s market forces in the management of this successful US based search engine giant is directly linked to its consistency, profitability, and efficiency.
Successful execution solely functions of inclusiveness, creation of quantifiable tracking devices for results, and recruiting an informed support team. Generally, the above recommendations should be practiced flexibly since Google’s operation environment is characterized by constant dynamics that may make previous designs irrelevant.
Reference
Gamble, J., Peteraf, M., & Thompson, A. (2015). Essentials of strategic management: The quest for competitive advantage. New York, NY: McGraw-Hill Education.