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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