Introduction
Google is a leading search engine and provider of online advertising services. The main focus of Google is in the search platforms, operating systems, advertising, and mobile phone products. The company has a wide of products that serve as the factors of customer attraction.
In 2013, Google enjoyed a market share of 67% in searches conducted at home and place of work computers. In relation to searches in mobile devices, it had a 97% market share. Google’s mission is to organize “to organize the world’s information and make it universally accessible and useful”. In order to attain the mission, the company has employed wide range strategic initiatives.
The strategies employed by Google are both generic and grand strategies. The strategies have credited with its fast growth and the current market share. The generic strategies used by Google entail differentiation. This is based on a broad market scope in which Google has a variety of products for its target customers across the globe. In addition, the strategy entails development of capabilities that act as the key competitive strategy.
On the other hand, the grand strategies employed by the firm include innovations, acquisitions offensive moves, collaborative partnerships, and strategic partners. The other strategy, which has been critical in the growth of the company, is its unique business model that is designed in a manner to appeal its customers. For instance, Google’s business model allows advertisers to bid on search items.
The bid is based cost per click (CPC) or cost per impression (CPI). The online adverts have remained to be the main source of revenue of Google. For example, in 2012 the search-based adverts generated more than $43.6 billion in revenue. Other sources of revenue in the same year included license fees levied on businesses that intended to install search appliances on their intranets.
Strategic Issue
The strategy and business model of a company play a critical role in determining the approach adopted to ensure that that there are superior products for the customers. For a company to have a substantial impact on the minds of the customers, it needs to have a strategy and business model that produces a competitive edge. As outlined, Google has both generic and grand strategies that have enabled it to penetrate the market.
The company’s business model has ensured diversified sources of revenue. For example, licensing fees and charges from corporations that intend to use company intranet and websites have been the main sources of revenues. In the endeavor to penetrate the market, Google has had to overcome stiff competition.
These challenges curtail the capability of Google to realize its full potential. Despite the competition challenges and the competitive rivalry in the industry, the prospects for Google are good. Bearing in mind the challenges and the environment of operation the strategic issue for Google is:
Will Google be in a position to penetrate the Asian internet search market and make people from China prefer Google as their main search engine site over other players?
- Can Google devise a customized business model for markets such as China?
- What strategies are appropriate for the market?
External Environment
Google made its first IPO in 2004. Since then, Google has been involved in research and development, and acquisitions meant to increase the dominance of the company as a leading search engine and internet advertising provider. The essence of these strategies has been to remain competitive in the industry that has been experiencing rapid changes in consumer preferences.
For instance, in 2012, Smartphones revolutionized the industry. It is estimated that in 2012, more than 103 million Americans and about 2 billion mobile phone users accessed the internet from the Smartphones, a shift from desktops and laptops.
The search industry is diverse and includes searches conducted in company intranets, desktop, laptop, and mobile phone searches. There are many forces that influence the search engine industry. The Porter’s five forces framework provides a platform to depict the situation of the industry. The following is the discussing of the industry outlook based on the Porters five forces framework. Figure 1 is the diagram for internet search industry’s five forces analysis.
Competitive Rivalry
The competitors in the Internet search industry include Google, Microsoft, Binge, Baidu, Yahoo, AOL, and other competitors that have very low traffic flow. In a business environment, the presence of numerous firms creates a stronger competitive rivalry. Rivalry plays an important role in growing and in improving the market. For example, the urge by the players in the industry to attain a substantial market leads to differentiation and other grand strategies.
The main aim of the processes is to ensure that customers are satisfied. For example, in the search engine industry, Google enjoys a substantial market share across the globe. However, the penetration into China has faced a lot of challenges from Baidu. The industry is not limited to internet searches; it traverses the search engines to include other product lines. For instance, Google introduced Google Apps in order to compete with Microsoft Office.
In the search engine industry, there are no customer switching costs which has enhanced competition. Overall, the industry has few players, but there is very high competition. This is influenced by the nature of the industry characterized by high innovativeness. Overall, there is very stiff competition in the industry. This has been the driving force in which the industry players have devised strategies to enhance growth and to defend their market shares.
Threat of Substitutes
Search engines provide a unique service that has no alternative. As a result, the threat of substitutes is very low. The possible alternatives include the online libraries and encyclopedias. However, their services are limited in nature and hence do not present threat to the search industry. In addition, it is costly for customers to switch alternatives because the libraries and the encyclopedias are relatively expensive. This implies that the customers are comfortable with having their needs met by the already established search engines due to the cost convenience. In general, it can be deduced that the search industry has good prospects for continued growth due to low or lack of threat of substitutes.
Threat of New Entry
The industry is very complex in terms of the required capital investment. There are high barriers to entry as current competitors have accumulated a lot of data through servers worldwide. This implies that maturing the market needs a new entrant to have sophisticated algorithms for search. It is also difficult for new entrants to attain substantial market share. Most of the search engines such as Yahoo, Google, Binge, and Baidu have gathered reputation over years and hence have gained customers’ trust.
The leading such engines such as Yahoo and Google have also diversified; they provide the users with other services such as social networking and email services. The diversification serves as a strategic lock-in to maintain their customers. The factors coupled with the acquisitions that have characterized the big players such Google bar new entrants from the industry. Examples of acquisitions include the Microsoft’s acquisition of Powerset and Google’s acquisition of Motorola Mobility.
Despite the high capital requirement, sophisticated search algorithms, and the strategies that have been employed by players to gain a competitive edge, it is worth noting that an excellent business model coupled with good market strategy can help a new company penetrate the market. For example, Google came up with a good strategy, which has contributed to its big market share. In addition, it is easy for competitors to copy the search algorithms.
The analysis of the above factors points to a complex situation in relation to the threat of new entry. However, case analyses of companies such as Microsoft’s market strategies, Google’s business model, and strategies depict that the companies have embraced protective measures to remain dominant in the industry. In addition, political and legal issues have also limited the entrance of other players. Case examples relate to the industry in China where a major Google has been curtailed due to protective nature of the government.
Bargaining Power of Suppliers
Creativity and innovations dictate the industry. This implies that the threat of forward integration may not work efficiently. This is because the major players have the ability to employ the most talented personnel to create their own search engines. The other key factor is that the organizations have the capability to buy networking devices from many suppliers. This limits the power of the supplier. The technology industry has been vibrant, and there are many entrants in terms of software engineers, programmers and web developers.
This implies that the search engines companies have a variety of sources to choose from, which in essence decrease the power of suppliers. Finally, the industry’s main source of revenue is from the advertising companies. As a result, the companies have employed strategies to enhance their relationships with suppliers hence limiting the power of suppliers.
Bargaining Power of Buyers
The demand for search engines is very high. The large numbers of internet users make the power of single users to demand concessions low. The collective demand influences the product and service offerings. For instance, the users require the value for their money. Thus, the search engines should be fast and with right security futures for the buyers to remain loyal to a given search engine. In addition, the search engines rely on traffic flow in order to gain revenue from the advertising companies.
In essence, the buyers do not have bargaining power because the search engines provide a platform for them to search with no direct payments. Despite the lack of bargaining the power, the competition among companies influences the service provisions because each search engine company wants high traffic flow in order to gain revenues from the advertisers.
This state of balance has influenced the companies to diversify service provisions. For example, in addition to its main revenue source, Google targets corporations to provide them with company intranets and websites. Based on the overall industry environment, the bargaining power of the buyers is low due to lack of alternatives to search internet. However, the need to maintain customer loyalty and substantial market share makes the industry invest in strategies that enhance the experience of the customers.
The Porters five force model depicts the online search industry as having good prospects for the current players. The high barriers to entry and the limited alternatives of the search industry cushion the industry from external competition by other industries. On the other hand, the competitive rivalry that exists between the firms makes it difficult to penetrate the market.
However, Google has depicted that an excellent and unique business model is critical to ensuring success and profitability. Furthermore, the cost of entry to this industry is very high. This implies that the players in the industry have considerable investments and have developed reputation and customer loyalty over time. These results in high exit barriers. For example, the companies cannot explore liquidation strategies easily.
As a result, the companies have to come up with excellent marketing strategies to achieve a competitive edge. For example, Google has had an aggressive marketing strategy to dominate internet advertising. This has been characterized by the acquisitions and research and development activities that intended to increase the dominance of the company. In addition, the company has had a strategic offensive to control the desktop and expand the internet search to television.
On the other hand, Microsoft has invested in strategies to enhance its Powerset capabilities. In addition, it has been aligning itself to cloud computing. The factors have contributed to the strong rivalry experienced among the major industry players such as Google, Yahoo and Microsoft. This has put downward pressure on the returns on investments for the various players. Despite the competitive rivalry, regional and political factors influence the entry to the industry.
In general, the internet search industry is very attractive. The increased number of internet users ensures that there is high traffic in the various search engines. The industry also has favorable profit outlook. Despite the attractiveness, the industry is very competitive. Other issues that affect the industry include the privacy issues.
Key Success Factors
The key success factors in the industry entail technology, research and development and the business model.
Technology
The ability to attract traffic is depended on the development of efficient search algorithms that incorporate technologies for faster search. The technology used in the search technology should have flexible compatibility functions integrated with security features in order to boost the confidence of the customers.
For example, the investment in technology that guarantees the security of the users. In addition, the affordable packages and easy to navigate platforms provide customer satisfaction. For example, Google’s market share has been due to its customer-friendly technologies. Examples of such technologies include AdWords and AdSense.
Business Model
The competitive rivalry in the industry requires a business model that is designed to meet the needs of the target customers. Customers require having a good experience while interacting with the service providers. A good business model that enhances the experience of users and provides cost friendly services is important for the growth. For example, Google’s CPI and CPC integrated with targeted ads have attracted many advertising companies to Google.
Research and Development
The internet business keeps on changing. The technological development experienced in the contemporary times points to an environment where a business can expand or die out very quickly. The only certainty is that the future depends on the Internet. With the competitive rivalry, the future of any player in the industry remains uncertain. Companies have to keep on envisioning and investing in technologies that will make them remain competitive.
Company Situation
Google is a leading player in the internet search industry. The financial records for years 2001, 2005, and 2008 to 2012 shows a sustained growth in revenue. The total revenues increased from $86 million in 2001 to $50,175 million in 2012. Similar trends were recorded for the net income and total assets acquisitions, which increased from $10,272 million in 2005 to $93, 798 million in 2012.
The consolidated revenues in 2012 amounted to $50,175 million, while in 2008; the consolidated revenues were $21,796 million. The main sources of the revenues included advertising revenues, which accounted for $43,686 million, licensing and other revenues were $2,353 million while mobility revenues realized from the Motorola Mobility were $4,136 million. The following section presents an analysis of the current financial status.
Google recorded a sales growth rate of 7039.4% n the period between 2001 and 2005. In 2005 to 2008, the sales growth rate was 255%. In 2008-2009, the sales growth was 8%. Based on financial records for years 2009 to 2012, the growth sales growth rate ranged from 23.97% to 32.37%. The growth rates for the period between 2010 and 2012 shows that the company has reached maturity stage (see Table 1).
Table 1. Growth Rate
Sales growth rate = ((current year’s total sales-previous year total sales)/ previous months total sales)*100.
Financial Analysis
Profitability is a measure of firm’s performance. In the case of Google’s case, this can be presented in terms of returns on investment (ROI). As per 2012, the ROI for Google was 11.4%. On the other hand, liquidity refers to how quickly a company can convert its assets into cash in order to meet short-term requirements.
The liquidity ratio for Google in the same period was 4.2. The leverage determines how a company raises capital from debts. This can be presented through debt ratio. This is a measure of firm’s efficiency based on the use of its fixed assets. The debt ratio in 2012 was 1.5. Finally, the activity ratio for the company is 1.5. Table 2 is a tabular representation of the ratios.
Table 2. Google’s Financial Analysis for Year 2012
SWOT Analysis
The following is the SWOT analysis of Google. See Table 3 for the summary.
Table 3. SWOT Analysis
Strengths
A broad range of service of services and products: Google has remained a dominant player in the search engine industry due to its variety of products. The main service that provides 90% of its revenue is the online advertising. Other services include online web sites and variety of other online content. In addition, the company offers apps that can be used over the internet.
Examples of the Apps and the platforms include Google TV, Google Book, Google Map, Google Play, calendars, Google search appliances and the Android Operating System mainly for the Smartphones. The broad range of products helps the company to attract and retain customers and to maximize its market share and revenue.
Strong financial performance: Since the 2004 IPO, the company has maintained steady trend in revenue growth. The company sales revenue has been increasing since 2001 to 2012. The success factors aiding the revenue growth have mainly been the online advertisements.
The other sources of revenue have been revenues from the sale of devices such as the Motorola mobility, company intranets, and websites. In addition, the strong financial performance can be attributed to the business model where the company has diversified products intended to increase the traffic of the customers. The CEO noted that “In some ways we have run the company as to let 1,000 flowers bloom, but once they do bloom you want to put together a coherent bouquet.” This points to its differentiation strategy.
Research and development: Research and development play a critical role in the development of the technological development of Google. The investment in the research and developments has helped Google to understand the market needs and hence the initiation of products that meet the needs of the customers.
For instance, the research has helped the company to determine the trends in the internet search. As a result, Google has been investing in services such as cloud computing and development of Smartphone apps powered by its Android OS and integrated into its Google play.
The culture of innovativeness: The other source of strength relates to the culture of innovation which has been one of the key success factors. For example, the invention of the Android was a strategic move informed by the forecasts that many people using internet searches were shifting to mobile devices.
Weaknesses
A limited source of revenue: Google has huge revenues. However, more than 90% of the revenue is from the advertising. This is despite the differentiation strategy that has seen Google move a lot of products to the market. The financial analysis points to a trend in which revenues from the advertisements have been increasing.
Bearing in mind that most of the competition rivalry in the industry depends on the internet traffic in order to gain more revenues from the advertising companies, Google may make it difficult to monetize the mobile device users who represent the highest group in the online advertising. That implies that Google should include other product lines that generate value.
Products that do not generate revenue: Research and development have resulted in Google coming up with a lot of products to entice customers to use Google’s search engines. Despite the investment in the development of the broad array of products, the products only add value to the main service such as the adverts. The products are used as strategic lock-in for customers. Hence, Google does not realize returns on investments in such products; instead they decrease the profits.
Opportunities
The growth in the number of internet users: Over the years, the number of the internet users has been increasing. This growth has been mainly in the mobile devices such as the Smartphone and tablets. The shift gives Google an expansion opening. The company can conduct a research to determine the market situation and devise ways to make a new product line targeting the mobile phone users.
Focus on Non advertising services: Google can diversify its sources of revenue by focusing on the nonadvertising operations. For example, products such as Google Book, Nexus, and the Google Play platform in the Android OS can be used to generate revenues. The revenues will help the company in the mitigation of risks that relate to over-reliance on the online advertisements.
Smartphone operating system: The Android Smartphones have gained strong market acceptance. This has resulted in intensified competition between Google and Apple Inc. Statistics show that internet users are mainly relying on Smartphones. Thus, it is expected that Android will increase market share in the world of the Smartphone.
This presents an opportunity for Google to built apps around the Android OS. This is likely to result in the OS becoming the dominate platform for the Smartphones. Such prospects will increase the market share and improve the revenues for Google.
Threats
Intense competition: The Internet search industry is very competitive. The competitive rivalry is normally from companies that have a strong financial performance such as Microsoft, Yahoo, and Social networks. These companies have the ability to develop new technologies that may reduce the customers using the Google search engines.
For example, Google introduced a social networking platform, Google+ but could not attain substantial market share due to the high competition from Facebook. Google also faces competition from Apple, which commands a substantial market share in the Smartphone industry.
Foreign interference: The international presence and good market share in the different regions of the world is very important for multinational corporations. Google operates in a globalized society that is not fully liberalized. For example, China is a potential market that could boost the revenues for Google. However, the company has been facing challenges in its endeavor to enter the market dominated by Baidu. The main reason has been the government restrictions due to the censorship issues for some of the search results contents.
The increase in mobile internet users: The growing number of the mobile phone users implies a reduction in the searches made on desktops and laptops. This implies that the offense by Google to control the desktop may not yield positive returns in future. In addition, the mobile devices provide limited space to place the online advertisements. It is thus, difficult to monetize the mobile internet users.
Recommendations
Strategic Issue
Will Google be in a position to penetrate the Asian internet search market and make people from China prefer Google as their main search engine site over other players?
- Can Google device a customized business model for markets such as China?
- What strategies are appropriate for the market?
Strategy Recommendations
The internet search industry has a great potential that Google can leverage on to attain favorable growth. However, competition remains to be very stiff. Google should utilize its strengths and the opportunities in order to increase the market share. Therefore, the generic strategy for Google should be the differentiation. This will entail research and development of unique products that meet the needs of the customers.
Already Google has embraced a business model that promotes differentiation. However, there is need to ensure that the products developed have unique functionality in order to differentiate them from the competitors. Google has a strong financial performance; this places it at a unique place to invest in new products to enable it gain the competitive edge.
In addition to the Generic strategy, Google should initiate grand strategies. This will be critical in expanding its market share and expanding the scope of operations. The grand strategies that the company should initiate include acquisitions, offensive moves, collaborative partnerships, and strategic partners. One key weakness of Google has been over-reliance on one source of revenue i.e. from online advertising.
The acquisition is a complementary strategy that can be used by the Google to venture into other related operations that bring more revenues to the company. For example, the company needs to analyze the mobile service providers that develop Smartphones’ applications and acquire the upcoming players. This will help in the development of apps for the Android OS and hence position Google in good to dominate the mobile apps industry and sale of the devices.
Google could also align itself to have strategic partners in the regions that have been difficult to penetrate. For example, the Chinese market presents a prospective market for Google. However, the market penetration has been a challenge due to the government sensor issues and competitive rivalry from Baidu. It can enter the market through an offensive move where it develops products customized to the Chinese market.
To ensure the success, Google should do a lot of research in order to understand the needs of the market. This will help it in devising the best product that will provide a competitive edge over Baidu. Similarly, the strategic partner should be in a position to provide a strategy to overcome the sensor issues raised by the government.
The other grand strategy will be Innovation. Innovation has become a critical component in many industries. As a result, Google needs to invest more in the technologies that bring new experiences to the markets. An example of innovation will be to re-strategize and develop a customized social media platform that can compete with Facebook and Twitter. This will help to tap into the growing customer traffic frequenting the social networking services mainly on the mobile devices.
Objectives
The objectives will include:
- To increase the non-advertising revenues by 20% through the differentiation strategies in a year’s period.
- To increase the markets share by 5% in the China through a strategic a strategic partner.
- To ensure that human resource capital acquires new skills and works in an environment that promotes creativity and innovation.
- Diversify in the Smartphone industry
Strategic Justification
The generic strategy of differentiation broadens the target market for Google and provides an alternative source of revenues. The other sources of revenues should supplement the current revenues dominated by ads and hence increase the profitability of Google. An alternative to the differentiation could have been focused differentiation where Google is supposed to emphasize on a given product.
There are new technologies being developed. Due to the competitive rivalry, focused differentiation can result in reduced competitive edge. In addition, customers can switch to innovative products as the cost of switching is zero.
On the other hand, the grand strategies provide the viable options that Google can employ in order to remain relevant. The failure to invest in the outlined grand strategies will make the company maintain a status quo. That will be very risky in the market where competitors such as Yahoo, Facebook, Twitter and Microsoft are continually innovating in order to give the customers a new experience. Compared to the competitors, Google has superior strength in terms of revenue base and market share.
Hence, it is better placed to use its prowess to put in place strategies that will make it penetrate the Asian market. For example, it is easy for Google to acquire smaller players and hence expand its market share. This should be carried out within the confines of the antitrust laws that control the industry.