Monday, January 28, 2013

Google Strategy


Introduction

Google inc. was started by two Stanford University undergraduates, Larry Page and Sergey Brin while they were working on the Stanford Digital Library Project (SDLP). The company was incorporated in September 1998 in Menlo Park California and was later reincorporated in August 2003 in Delaware. The headquarters of the company are found in Mountain View California. The firm is involved in the provision of internet search services through the use of the company’s search engine as long as the person who is making the search has a connection to the internet. The search capability of the company allows those making the search to obtain almost limitless information which is relevant to them freely. The company’s revenues are gotten through the delivery of cost effective and relevant advertising through the placement of Adwords to promote the products of the companies. Moreover, the company also benefits from the third party advertisement.  Currently, the firm offers functionalities such as dictionary, spell checkers, measurement and currency converters, weather reports, music and movies, maps and also news (Miller, Vandome & McBrewster, 2010). Due to the increasing growth of the company, the firm also offers services such as store hosting, music and video streaming and website services and tools. The company’s IPO was carried out in 2004 raising a total of 1.67 billion dollars allowing the company to have a market capitalization of about 23 billion dollars. The company has operation in more than 60 countries of the world and offers the search capabilities in more than 130 languages.  The organizational structure at Google Inc. has the CEO, Larry Page; Executive Chairman, Eric Schmidt; Co-Founder, Sergey Brin; 3 senior Vice Presidents: Nikesh Arora doubling as Chief Business Officer; Drummond David, Corporate Development and Chief Legal Officer; and Patrick Pichette, Chief Financial Officer. The firm had a total of 28768 employees as at 30th June, 2011 (Google, 2011).
The mission of the company is to organize the world’s information and make it accessible and available universally. The vision of the company is to provide their services and applications to users in the most accessible formats and languages. The values of the company include focus on the user rather than to serve the organization. The second value is focus on solving only one problem which is the search problems the users face. Thirdly is to provide answers to the web users promptly and fast without any delays thus increasing their efficiency in service. Also, the firm also has the value of democracy in the web works. Moreover, the firm also focuses on making money without resorting to evil means and also the realization that the information need is cross boundary and thus the company purposes to satisfy this need. Another value of the company is to accept and deal with new challenges in order to make the work fun. Finally, the company focuses on the provision of the best service (Google, 2011).

External analysis of the firm

PESTEL analysis

The political condition that characterizes the countries in which Google Inc. operates has an influence on how the Google products and services are used for the different purposes for which the user determines. A case in point was the censorship of the Google services and attacks on the servers and domains of the company in China due to the government’s feeling of unease with the operation and the levels of enlightenment that the firm was exposing the Chinese citizens to. Due to the perceived infringement on the government’s control to the access of information, the operations were suspended leading to considerable losses to the company.  Also, the firm is affected by the different employment laws that are found in the different countries where the firm operates in. also, taxes on the products and services also impacts on the company as every individual country where the firm operates sin has almost different taxation system with the exception of the European Union (MacLennan, 2011). Moreover, due to political pressure, Google has sometimes altered pages rank scores to make some searches less popular. The final political condition is the political stability of the country and the government policy on the economy.
Legal issues include patent infringement for instance as was the case with Bedrock Computer technologies which was awarded a 5 million dollar settlement in the case where Google used the patented elements in the development of their Linux Kernel. Secondly, the increasing usage of Google bombs which manipulates search results to return unexpected pages mostly to ridicule a person of organization. In February of 2008, a Google bomb was created where on searching ‘Dangerous Cult’, the top result was the Church of Scientology. Google has also been accused of Click Fraud where the firm uses either computer programs, persons of automated scripts to create the illusion of a legitimate user of the website while in the real sense they have no interest to see the add at all. The motive of click fraud is to generate revenue to the firm from the charge per click ads (Elgin, 2006). Google is also faced with problem of the privacy of the user’s data especially on the usage of the particular data for target marketing by firms which purchase the data of the users (Meiners, Ringleb & Edwards, 2011).
The economic situation of the firm can be described as growing although it faces some problems. Google has a market share of 57 % in the internet service market with Google returning a whooping 6.52 billion dollars as compared to their major competitor Yahoo which posted an income of 0.43 billion dollars in 2009 (Freed, 2009). The stock of Google Inc. has been moving in the market at the range of between 495 and 512 dollars in the past year with an earning per share (EPS) standing at 27.73 dollars. However, there has been a noted overall rise in the share prices of the company by 3.79 % form the 495.52 which was witnessed in the 3rd quarter of 2010 to the current 512dollars in June 2011. Although there has been a general drop in the stocks of other industries, the internet industry has continued to post impressive results due to the increased use of internet based advertisement.
The socio-cultural factors affecting Google Inc are mostly related to their considerations of the interests of the customers. Most people consider Google as not too keen to consider the benefits to the customers due to the various user privacy concerns that the firm is currently being faced with. Generally, the adverts for Google are in most cases delivered to the persons in accordance with the relevance of the materials that the search for in the internet thus takes into considerations, their social and cultural needs (Management Paradise, 2010). This limits any cases of offensive messages being delivered to the customers or users of the search engines. The Google searches also takes great consideration as to the cultures and social differences in the users by offering the search engines in a language that is very natural to them for instance Google Swahili for those in East Africa and Google Chinese for those in China. To enable more people to be able to access the Google services, the firm has released mobile application that can be downloaded by users.
The technological factors affecting the firm are the rapid technological advances thus requiring the firm to keep up their knowledge of the issues in the industry to enable them deal with the competition especially from their main competitors; Yahoo and Msn. Due to the increasing use of technology, the firm has been at the fore in setting of trends that are used in the search engines (Meiners, Ringleb & Edwards, 2011). The firm also faces a dilemma in the use of the technology for instance the direct advertisement over the internet. This is an area where the firm wishes to venture into but is still considering the ethicality and the legality as in most cases, this technology takes advantage of the user’s data for these marketing initiatives. The firm has also adopted the use of portable applications for instance people can access maps, mails and other services using handheld devices such as mobile phones that are web enabled and PDAs. Finally, the firm has also made use of the technology to bring more innovative web applications for instance Google Talk, Google +, Google Maps and Picasa which have contributed towards making the use of Google more fun and appealing to more people.
The dominant economic traits in the industry include the fact that most of the companies generate their income from the online advertisements that return together with the particular searches that the users of the search engines have. Google later moved into the provision of email services and this has been the general trend with the other competitors of the firm as they all strive to provide these services to the users. Finally, although the other search engine providers in the industry, for instance Yahoo have adopted the usage of the customers’ information in direct marketing, Google has backtracked on this but currently they are considering it as the competitors seem to be generating huge revenues from the business.

Porter’s 5 Forces Model

The model is used to analyze the industry environment of Google inc. to determine its competitive position. The model has five considerations; they included the threats of substitute products, bargaining power of the consumers, bargaining power of the suppliers, industry rivals and finally threats that are posed by new entrants. All the above five forces have an influence on the pricing of the firms products and services and also the degree of competitiveness of the firm.
The bargaining power of the suppliers is an important factor that must be considered by any firm. The nature of the service provided by Google makes both the recipient of an advert and the maker of the advert to be consumers of the company. If Google can maintain its dominance in the search market, the bargaining power of the suppliers will be low. According to reports by Google (2007), the costs that the firm incurred stood at 40 % of the sales that the company made in 2007.
Threat of new entrants is dealt with using the high barrier to entry that the industry currently operates under (Nehls, 2011). The high technological user for instance numerous servers distributed in various location around the globe act as a barrier to new firms that do not boast of these technologies. Also, due to the many years experience in the management of the user information in their databases, the firms are better placed with the advertisers who will shun those firms that lack this experience. Finally, for a new entrant to effectively compete, they will need to provide searches at relatively fast speeds. This capability lacks in most cases and thus leading to a relatively low threat to entry.
Google in dealing with the current competitors has created wide ranging complimentary products on top of their internet search services. First, the firm relies on targeted advertisements which result from the information that the collect about their users. The revenue form targeted marketing had been growing at the average rate of 115% annually for the years between 2003 and 2008. This growth dropped to approximately 108 percent up to 2010 mostly due to the increasing competition from the existing search service providers. Also, Google holds a market share of 57 percent thus enabling the company to increase the quality of targeted ads and search results faster than the firm’s competitors who stand at market shares of 23 percent and 11 percent for yahoo and Msn respectively. However, due to the large influx of advertisement dollars into the industry, there has been a fierce rivalry between the firms (Grant, 2005).
In dealing with the threat of substitutions, there is high threat of entry especially from Facebook which as popular as Google. The threat to entry is made more serious due to the non existent switching costs (Nehls, 2011).
Finally, the bargaining power of the consumers is also a significant factor which the organization must consider. The users of the services provided by Google are becoming more complicated and are increasingly demanding all the products that the firm offers for free. It is also complicated to determine the exact features that the users of the web want to see thus calling for significant usage of polls to determine the general directions. Moreover, the firm has to satisfy the needs of both the web users and the organization which put up their adverts. Finally there is the backward integration and its associated threats mostly in the cases where the suppliers are purchased so as to reduce the dependency of the firm on their supplies (Grant, 2005).

Driving forces

Innovation is the first driving force contributing to the relevance of searches through use of PageRank. The introduction of Universal search contributed further to the comprehensiveness as users can search books, music and even videos. Thirdly, the invention of real time search ensures that events are updated in the databases as soon as they happen. The other driving force is the increased globalization thus furthering the need to access information at very fast speed. Queries generally take 0.25 seconds almost as fast as the blinking of an eye which takes 0.1 seconds. To achieve this, the firm uses smart coding and distributed computing systems (Google, 2011). Finally, there are the government policies and regulatory influences.

Key success factors

To begin with, the innovation business model has been at the fore of the company’s success. The use of targeted ads not only works towards generating revenue for the company but also creates a serene experience for the web users through the creation of relevant adverts. Secondly, the focus on the experiences of the users thus creating a channel for the flow of money as people will only agree to part with their money when they are satisfied with the services. Thirdly is the use of technology for instance the page ranking option. The firm also benefits from the distribute computer server systems that are located in different parts of the world where the firm operates and thus contributing faster searches by the users of the web search service. Finally, the firm also banks on the brand recognition that they enjoy. Google is among the best recognized brands in the world as even characterized by the new buzz word “to Google”, which basically meant to carry out a web search (Loftesness, 2003).
The top competitors of the firm include AOL inc., MSN and Yahoo inc. which are all providing the services of web search to their users. All this three major competitors of the firm have focused on the generation of revenues through targeted advertising (Grant, 2005).

Internal analysis

In carrying out the internal analysis of the firm, the first consideration will be on the resource strengths and weaknesses of the firm. The firm has three major strengths. The first is the availability of the requisite technology and the associated infrastructure for instance the servers which are distributed in the countries that the firm operates. The availability of the infrastructure leads to the better and quicker searches by the company. Secondly, there is the availability of the AdSense and AdWords programs which contributes towards strengthening the revenue position of the firm. Finally, there are the huge customer information databases which have resulted from the strong market position of the firm. The database contains billions of data about the users thus many advertisers will put their adverts up with Google rather than with any of its competitors.
The weaknesses of the firm include the firm’s very low presence in the social networking domain thus leading to loss of some user base which has shifted towards the use of social networking more i.e. the youth, who comprise  a huge percentage of the world’s demographics. Secondly, the firm lacks a platform for where they can integrate their products. Finally, the firm relies on Google Network members (Google, 2011).
The core competence of the firm include innovation, forward thinking and extra ordinary strategies for instance the employees of the firm always posses very high academic qualifications which enable them to develop very effective and extra ordinary services and products for their consumers. The second core competence of the firm is the brand equity of the firm. Due to the high recognition of the firm amongst the consumers, the firm is bale to generate more revenue as compared to their competitors (Boone & Kurtz, 2010). Finally, the accuracy and quality of the searches made from the firms web engine is also a core competence of the firm as more and more users resort to the browser. Finally, also has a core competence arising from the technology that they have for instance the ranking algorithm. The PageRank which the firm patented gives them the most relevant of search results as compared to the other search engines.
Google Inc. has capabilities to branch into the social networking segment. Google is increasingly using its available technologies by allowing for the return of social results in the main page and not bundled together as was done previously at the bottom of the Search Engine Results Page (SERP). Another capability that the firm seems keen to develop further is the voice and video chat functions. Currently the feature, which is found in the Gmail email services, allows for voice or video call between only to people who are communicating one to one. Google inc. is in the process of developing a multi faceted video and voice chat feature to build upon the technology that the company acquired form Marratech, a Swedish company, which Google acquired in 2007 (Sinha, 2009).
Distinctive competence of the firm is mostly derived from the fact teat the employees of the firm have very high skill levels and are committed towards the achievement of the goals of the firm (Boone & Kurtz, 2010).
Google inc. financial figures have been growing at a very fast rate over the years. The net income grew from 100 million dollars in 2002 to 3.077 billion dollars in 2003. The EBIT of the firm has been ranging between 33 and 35 percent of the sales of the firm. The sales of the company have increased by 2,412 percent between 2002 and 2006 while the income (net) has increased by even greater percentages (3,088 %). Google has a lot of excess cash especially those which were generated in the 2004 IPO as is represented by balances in the short-investments. Google return on equity has increased over the years thus encouraging to the investors who put their money in the company. Google has had many cash on hand days thus further cementing the position that the firm has more than enough money for their activities.

Liquidity/profit ratios
2002
2003
2004
2005
2006
Current ratio
2.59
2.38
7.91
12.08
10.00
Cash ratio
1.63
0.63
1.25
5.20
2.72
NP margin
22.7%
7.2%
12.5%
23.9%
29.0%
Return on equity
53.1%
17.5%
13.6%
15.6%
18.1%
Source: Author generated.
           
The costs products and services sold by the firm have maintained a level of about 40 percent of the sales of the services or products. This shows that the company operates at a very high level of profitability (Google, 2011)
The value chain analysis
Google makes use of the scattered web resources, routes the resources, sorts them out into categories and then directs the users to the particular resource that is of the greatest interest to them. The firm creates value through the organization of the information so it targets and segregates the audience. Secondly, the firm facilitates the capturing of the value through the transaction facilitation. The advertiser then pays the firm for the service of delivering the message to the audience (Bamford & West, 2010).
Google inc. has a very high competitive position arising from the fact the original quality of the material which flows down along the value chain results form the activities by the firm. The firm is very powerful due to its ability to gather billions of information from different web sources and archive them in a single database thus affording the company a very large customer base. Due to the dominance of search, the company enjoys very high number of audience thus the firm has very high leverages when they are dealing with the other facilitators in the value chain. The high leverage allows the firm to move down the value chain taking up more facilitation roles thereby capturing more of the value that the firm creates without losing business as the advertisers will be willing to pay for the service (Boone & Kurtz, 2010).
The firm currently explores several strategies that are meant to further cement its position in the industry. To begin with, Google is increasingly moving towards the use of offline adverts, mostly following the realization that the online advertising only accounts for 9.2% of the US adverts market. The firm uses strategies such as ad transfers from YouTube to television, use of billboards and also through the integration of traditional fixed ad pricing. The company is also pursuing the strategy of voice searches (Kurtz & Boone, 2009).  Finally, Google also explores the strategy of non monetization of some of their services. However in the real sense, these particular services are monetized indirectly through the payments to the adverts.
SWOT analysis
            The strengths of the firm include high brand loyalty, strong position in the market, direct routing of the users, localized searches, and best internet search engine and user friendly interface. The weaknesses include too much liquidity, low utilization of assets, little presence in social networking, increasing costs of maintaining the data center, lack of ability to monetize YouTube and also the political issues that face the company. The opportunities are the presence of its own browser (Google Chrome), growth of the internet usage, the increased acquisition of other firms and the growing prospects for online ads. Finally the threats are increased competition (from AOL, Bing, Yahoo, MSN etc.), increased legal suits of the company, requirements for new technologies, issues of privacy and the rising threat from Facebook (Kurtz & Boone, 2009). 

Strategies problems that face Google Inc

            The firm current has problem in retaining their most priced assets. There has been a noted high turnover of the employees who are central to the firm with many of them switching to the competitors of the firm. The second issue is the string of legal suits mostly those arising from the antitrust and patent infringement. The third issue that faces the firm is increased competition from the existing competitors of the firms (Boone & Kurtz, 2010).

Alternative courses of action

            To deal with the issue of high staff turnover, Google Inc can change it hiring procedures of taking up already skilled employees to where the talents of the employees is developed in the firm to guard against high staff expectation. Rewards systems should be geared at the whole group of employees so that no single employee can take credit for the success of a process. Finally, remuneration can be made to be very competitive in the industry to guard against switching to competitors (Bamford & West, 2010).
            To deal with the issue of legal suits, reduction in discrimination in the search results so that no individual can feel left out. The firm can also give very clear advertisement rates so that no company can feel discriminated against. Thirdly before any resource is entered into the database, the system should flag it as either copyrighted or not copyrighted. This will greatly reduce the legal suits. Unauthorized use of the information from the users should also be abolished and the term of uses of the data should be determined and the users be given a chance to consent (Jennings, 2010).
            In dealing with competition form the other firms that are already in the industry. The firm can diversify its interests form mostly the search to that of social networking. Secondly, the firm could merge with Ask Inc. so that they can reduce its main competitor’s market share further (Bamford & West, 2010).

Decision criteria

            The decision of the firm will be based on what will return the best value to the customers who are the users of the products of the firm while keeping in mind the costs that the firm will incur in the process. The value to the customers will also be measures against the overall long-term profitability of the firm (Ehrgott, Figueira. & Greco, 2010).

Recommendations

            To maintain the high levels of services that the consumers of the firm have been accustomed to, the firm will look at ways of retaining the current hiring procedure of the firm, where vey highly skilled individuals are selected through a rigorous process. The employees thus employed are categorized into groups from where they give their different inputs towards the development of the final products. The rewards thus given for good work goes to the group thus no feeling of importance by any employee.
            Clear privacy policies should be developed so that the users are at all times sure of what the data gotten from them will be used for. This will be very helpful to the consumers while at the same time contributing towards cost cutting (Bamford & West, 2010).
            Finally, the firm can diversify its operations to the social networking so that it can act as a cushion in case the competition in the search becomes fiercer (Google, 2011).

Implementation plan


Recommendation
Persons Responsible
Start
End
Costs (estimated)
Rewards practices
The HR
Line managers
Immediately
A continuous process
250 million dollars per year.
Privacy policies
Research & Development Division
ongoing
When the customers completely gain complete trust in the firm
150 million dollars
Diversification of the services of the company.
Business Development Department
Immediately
The process will continue until when the firm’s position in the competitive environment will be stable.
500 million dollars

Conclusion

            Google inc. faces a myriad of problem in its environment. However, the focus should be in building on the strengths and opportunities of the firm so that they can maintain their competitive position in the industry (Bamford & West, 2010).

 

 

 

 

 

 








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