Google Strategic Analysis

Strategic Audit of Google Google Abstract Google was founded by two Stanford PhD students, Larry Page and Sergey Brin, in 1998. The two recognized a need within the internet services industry for a search engine that would provide accurate results. The two opened Google, Inc. as an online company that provided a superior search engine, a platform for extremely targeted advertisements, and intranet solutions to internet users across the world. The company obtained the majority of its revenues by selling advertising space within the search results. Google employed an innovative system for selling this space to companies; companies would only have to pay Google for the advertising space if a customer â€Å"clicked† on their advertisement. As Google became the most-used search engine in the world due to its greater accuracy of producing relevant results, advertising revenues increased at a phenomenal rate. Google faced competition from others in the internet search services industry; specifically AOL, MSN, and Yahoo. Each competitor recognized the importance of a quality search engine to customers – as well as the opportunity to gain advertising revenues – and was attempting to develop an innovative search engine that would top Google’s. Competition from Microsoft was also a possibility. Microsoft indicated that they might attempt to add a search engine to their new operating system that was set for release in 2006. While Microsoft was not an established player in the internet search services industry, they had the technical expertise and massive resources to present a major competitive threat. The importance of the search engine to Google’s competitors as a stand-alone service was great but the development of a search engine rivaling or bettering Google’s would also attract customers to their other services. Google’s competitors offered many other services, in addition to their search services, such as email, online dating, and fantasy sports networks and were successful in doing so. Google’s success as a company hinged almost completely on the success of their search engine. Google, Inc. egan to diversify into other segments of the internet services industry in order to lessen the risk of having only one truly successful product and to build up both their customer base and customer loyalty. Google began to offer internet users the ability to search within a directory of 425,000 still images. Their collection of images tied with Yahoo’s as internet users’ first choice for image-searches. Google also began offering a directory of 50 0 million discussion topics that dated back to 1981 called Google Groups. Customers, in addition to being able to examine discussion topics within Google Groups, could add postings to a new group. Also, in 2004, Google began offering its users access to a compilation of 4,500 news sources located all over the world. Google then developed a service that would allow cell phone and handheld device customers to use Google’s search and other services on their wireless devices. In addition to these services and others, Google developed Google Catalog, a service that would allow users to search print mail order catalogs, and offered email accounts to select clients. In order to remain ahead of the competition and an industry leader in providing internet services, Google had to now make some strategic decisions. To assure the future of the company, Google’s management team knew that they would have to differentiate Google’s products from those offered by competing companies, such as Yahoo, MSN, and AOL. Google could either continue to expand the amounts of services it offered (i. e. include text messaging services, large email accounts, and others), it could work to improve the services it offered across the board, or it could focus on improving its most successful creation: the Google search engine. Each option had its merits and the company had plenty of resources to use in pursuing any of these three (or other) strategies. The difficult issue was choosing the most appropriate strategy for the company. I. Current Situation A. Performance ? Most-used website in the world ? Possesses global brand; one-half of internet users outside the United States ? High degree of user loyalty and brand identity ? Employs interface for over 88 languages ? Generally considered to possess the most accurate internet search engine ? Google network is utilized by 80% of internet users; used by 165 million people in the United States and United Kingdom per month ? Google’s 2008 revenues were $21,795,550,000, a 31. 34% increase since last year[1] ? Google’s 2007 revenues were $16,592,986,000, a 56. 47% increase over 2006’s revenues[2] ? Google’s cash increased 42. 34% from $6,081,593,000 in 2007 to $8,656,672,000[3] ? Google’s debt to equity ratio was 10. 44% in 2007 and 11. 1% in 2008. Yahoo’s debt to equity ratio was 22. 05% in 2007 and 17. 81% in 2008. Microsoft’s debt to equity ratio 50. 15% in 2007 and was 50. 7% in 2008[4] ? Google’s current ratio was 8. 49 in 2007 and 8. 77 in 2008. Yahoo’s current ratio was 2. 41 in 2007 and 2. 78 in 2008. Microsoft’s current ratio was 1. 44 in 2007 and 1. 69 in 2008[5] ? Google’s income from operations was 30. 64% of sales revenues in 2007 and was 30. 43% of sales revenues in 2008. Yahoo’s operating income was 9. 98% of sales revenues in 2007 and 0. 18% of revenues in 2008. Microsoft’s operating income was 36. 23% of revenues in 2007 and 37. 19% of sales revenues in 2008[6] ? Return on Assets (ROA) = 16. 6% in 2007 and 13. 3% in 2008. Yahoo’s ROA = 5. 4% for 2007 and 3. 1% in 2008. Microsoft’s ROA = 19. 3% in 2007 and 19. 9% in 2008. [7] ? Return On Equity (ROE) = 18. 5% in 2007 and 15. 0% in 2008. Yahoo’s ROE was 7. 2% in 2007 and 4. 5% in 2008. Microsoft’s ROE was 38. 8% in 2007 and 57. 4% in 2008[8]. B. Strategic Posture ? Mission Statement: â€Å"To organize the world's information and make it universally accessible and useful. †[9] ? Objectives: ? Remain the industry-leading website in terms of internet traffic market share ? Remain the industry leader in providing the most accurate search engines ? Capture market share in the online advertising market and become the industry leader in providing directed, online advertising services ? Reduce risk by increasing market share in non-search internet services: Google catalog, Google Business Solutions, Google News, etc ? Begin licensing patented wireless technology and intellectual property to other companies ? Further diversify company from competitors C. Corporate-level strategies ? Pursue a strategy of concentric diversification by entering into other areas of the internet services market D. Business-level strategies ? Differentiate Google’s products from those offered by competitors ? Competitive rather than cooperative E. Functional-level strategies ? Google’s R strategy is to be a technological leader ? Google’s marketing strategy is to simultaneously pursue a market development strategy to gain market share for its search engine and pursue a product development strategy to increase the diversity of its product portfolio. In both cases, Google primarily uses a pull strategy to entice consumers to utilize its products. For example, Google uses Google Business Solutions to advertise the ways Google can help various businesses through the use of their products. This advertising results in businesses â€Å"pulling† Google’s products through the channels. ? Google’s financial strategy includes maintaining a low debt to equity ratio. Their debt to equity ratio was only 11% in 2008, which is much lower than that of the competition ? Google’s operations strategy includes increasing and maintaining global operations. They have offices and thousands of services in many different countries on several continents. This is more fully discussed in a later section. ? Human resources – Google’s HR strategy entails maintaining and further developing an extremely diverse work force. Its strategy is also focused on attracting employees with advanced technical skills and paying them well both monetarily and with many fringe benefits. This is more fully discussed in a later section. II. Corporate Governance A. Board of Directors[10] ? Eric Schmidt has served as our Chief Executive Officer since July 2001 and as a member of our board of directors since March 2001, where he served as Chairman of the Board from March 2001 to April 2004. In April 2004, Eric was named Chairman of the Executive Committee of our board of directors. Prior to joining us, from April 1997 to November 2001, Eric served as Chairman of the board of directors of Novell, Inc. , a computer networking company, and, from April 1997 to July 2001, as the Chief Executive Officer of Novell. Eric was a director of Siebel Systems until January 2006. Eric holds a Bachelor of Science degree in electrical engineering from Princeton University and a Master's degree and Ph. D. in computer science from the University of California at Berkeley. Sergey Brin, one of our founders, has served as a member of our board of directors since our inception in September 1998 and as our President of Technology since July 2001. From September 1998 to July 2001, Sergey served as our President and Chairman of the Board. Sergey holds a Master's degree in computer science from Stanford University and a Bachelor of Science degree with high honors in mathematics and computer scien ce from the University of Maryland at College Park and is currently on leave from the Ph. D. program in computer science at Stanford University. Larry Page, one of our founders, has served as a member of our board of directors since our inception in September 1998 and as our President of Products since July 2001. From September 1998 to July 2001, Larry served as our Chief Executive Officer and from September 1998 to July 2002 as our Chief Financial Officer. Larry holds a Master's degree in computer science from Stanford University and a Bachelor of Science degree with high honors in engineering, with a concentration in computer engineering, from the University of Michigan and is currently on leave from the Ph. D. program in computer science at Stanford University. ? L. John Doerr has served as a member of our board of directors since May 1999. John has been a General Partner of Kleiner Perkins Caufield & Byers, a venture capital firm, since August 1980. John is also a director of Amazon. com, Inc. , an Internet retail company, Homestore, Inc. , a provider of real estate media and technology solutions, Intuit, Inc. , a provider of business and financial management software, and Sun Microsystems, Inc. , a supplier of networking computing solutions. John holds a Masters of Business Administration degree from Harvard Business School and a Masters of Science degree in electrical engineering and computer science nd a Bachelor of Science degree in electrical engineering from Rice University. ? John L. Hennessy has served as a member of our board of directors since April 2004. Since September 2000, John has served as the President of Stanford University. From 1994 to August 2000, John held various positions at Stanford, including Dean of the Stanford Unive rsity School of Engineering and Chair of the Stanford University Department of Computer Science. John has been a member of the board of directors of Cisco Systems, Inc. , a networking equipment company, since January 2002 and chairman of the board of directors of Atheros Communications, Inc. a wireless semiconductor company, since May 1998. John holds a Master's degree and Doctoral degree in computer science from the State University of New York, Stony Brook and a Bachelor of Science degree in electrical engineering from Villanova University. ? Arthur D. Levinson has served as a member of our board of directors since April 2004. Since July 1995, Art has served as a member of the board of directors of Genentech, Inc. , a biotechnology company, and has served as its Chairman and Chief Executive Officer since September 1999. Prior to 1999, Art held various executive positions at Genentech, including Senior Vice President of R. Art has been a member of the board of directors of Apple Computer, Inc. , a computer hardware and software company, since 2000. Art was a Postdoctoral Fellow in the Department of Microbiology at the University of California, San Francisco. Art holds a Ph. D. in biochemistry from Princeton University and a Bachelor of Science degree in molecular biology from the University of Washington. ? Ann Mather has served as a member of our board of directors since November 2005. Since April 2004, Ann has been a director of Central European Media Enterprises Group and serves on its Audit and Compensation Committees. She served as a director of Shopping. com from May 2004 until it was acquired by eBay in 2005 and was Chair of the Audit Committee and a member of the Corporate Governance and Nominating Committee. From 1999 to 2004, Ann was Executive Vice President and Chief Financial Officer of Pixar. Prior to Pixar she was Executive Vice President and Chief Financial Officer at Village Roadshow Pictures. From 1993 to 1999 she held various executive positions at The Walt Disney Company, including Senior Vice President of Finance and Administration for its Buena Vista International Theatrical Division. Ann holds a Master's degree from Cambridge University. ? Paul S. Otellini has served as a member of our board of directors since April 2004. Paul became the Chief Executive Officer and President of Intel Corporation, a semiconductor manufacturing company, in May 2005. Paul has been a member of the board of directors of Intel since 2002. He also served as Intel's Chief Operating Officer from 2002 to May 2005. From 1974 to 2002, Paul held various positions at Intel, including Executive Vice President and General Manager of the Intel Architecture Group and Executive Vice President and General Manager of the Sales and Marketing Group. Paul holds a Master's degree from the University of California at Berkeley and a Bachelor's degree in economics from the University of San Francisco. ? K. Ram Shriram has served as a member of our board of directors since September 1998. Since January 2000, Ram has served as managing partner of Sherpalo, an angel venture investment company. Prior to that, from August 1998 to September 1999, Ram served as Vice President of Business Development at Amazon. com, Inc. , an Internet retail company. Prior to that, Ram served as President at Junglee Corporation, a provider of database technology, acquired by Amazon. om in 1998. Ram was an early member of the executive team at Netscape Communications Corporation. Ram holds a Bachelor of Science degree from the University of Madras, India. ? Shirley M. Tilghman has served as a member of our board of directors since October 2005. Since June 2001, Shirley has served as the President of Princeton University. From August 1986 to June 2001, she ser ved as a Professor at Princeton University and from August 1988 to June 2001 as an Investigator at Howard Hughes Medical Institute. Shirley holds a Ph. D. n biochemistry from Temple University and an Honorary Bachelor of Science degree in chemistry from Queen's University. ? Three members are inside board members and seven are outside board members; two are female ? Committees include: audit, leadership development and compensation, nominating and corporate governance, executive, acquisition, and real estate[11] B. Top Management ? Eric Schmidt , Chairman of the Board and Chief Executive Officer ? Larry Page , Co-Founder & President, Products ? Sergey Brin , Co-Founder & President, Technology Nikesh Arora , President, Global Sales Operations and Business Development ? Laszlo Bock , Vice President, People Operations ? Shona Brown , Senior Vice President, Business Operations ? W. M. Coughran, Jr. , Senior Vice President, Engineering ? David C. Drummond , Senior Vice President, Corpora te Development and Chief Legal Officer ? Alan Eustace , Senior Vice President, Engineering & Research ? Urs Holzle , Senior Vice President, Operations & Google Fellow ? Jeff Huber , Senior Vice President, Engineering Omid Kordestani , Senior Advisor, Office of the CEO and Founders ? Patrick Pichette , Senior Vice President & Chief Financial Officer ? Jonathan Rosenberg , Senior Vice President, Product Management ? Rachel Whetstone , Vice President, Public Policy and Communications ? Susan Wojcicki , Vice President, Product Management III. External Environment Analysis (EFAS, see Exhibit 1) A. General Environment[12] 1. Natural Environment ? Solar or geomagnetic storms in space could destroy or damage Global Positioning System (GPS) satellites as well as cause electric power outages on earth. In 1989, a geomagnetic storm caused a nine-hour power outage in Eastern Canada that affected millions of people[13]. The GPS satellites are used by Google to provide their Google Earth service. The power outages could affect internet traffic which would reduce Google’s advertising revenues. The power outages may also prevent Google from offering services due to a lack of power to run their equipment. Another possibility is that Google may have to use back-up power – such as generators – or purchase it temporarily at a higher rate from another source; thereby increasing their operating costs (T) ? Climate change is expected to result in an increase in the intensity and the frequency of severe storms. Weather issues that are expected to increase in both intensity and frequency are: windstorms such as tornados and hurricanes, heat waves and droughts, storms with extreme rains or snow, and dust storms. Floods and landslides are expected to increase as well[14]. This could affect Google by causing damage to the communications infrastructure – i. e. cable cuts – which would cause the internet connections to become intermittent or nonexistent until the cable cut or related issue is repaired. In the case of wireless connections, â€Å"wireless nodes† like cell phone towers may be knocked over. Other communications items such as switching networks may be damaged by extreme weather as well[15]. The extreme weather could prevent Google from delivering services to customers and could damage other businesses and industries as well; resulting in reduced revenues for Google and a slump in the overall economy (T) ? As mentioned above, storms with extreme winds are expected to increase which will likely increase the tumultuousness of the ocean. 5% of cable cuts in undersea cables are caused by ships’ fishing nets and 18% are caused by ships’ anchors. Extreme weather may increase the frequency of undersea cable cuts from ships; resulting in internet disruptions[16] (T) 2. Sociocultural Forces ? An estimated 577 million people worldwide access the internet using mobile devices. The number of people accessing the internet via mobile phones is expected to increase to 1. 7 billion by 2013. By 2014, mobile internet users are expected to make up around 50% of all internet users (O)[17] ? The pace of life is increasing for the average consumer. Due to advances in technology – like the cell phone, wireless laptop computer and email – each person with access to these technologies is pressured to complete more tasks. This increases reliance on the newest technologies to meet the demands of increasing expectations put upon consumers[18] (O) ? Consumers are worried about identity theft and privacy; especially how their information can be accessed and used by other companies and individuals online. [19] (O) ? The average American respondent spent 19 hours per week surfing the internet[20] (O) ? Email remains the most popular online activity. This is even more true with users 64 years and older. 73% of teenage users reported using email more than anything else on the internet and 74% of internet users aged 64 and older reported using email more than anything else on the internet[21] (O) ? The largest increase in internet usage can be found within the 70-75 year-old age group. Previously, 26% reported using the internet; this number has increased to 45%[22] (O) ? Internet users aged 18-34 are the largest group of internet users who use the internet for entertainment purposes. For this group, entertainment includes watching videos, playing online games, engaging in virtual worlds, and downloading music[23] (O) ? Internet users aged 12-34 are the largest group of users to read and write blogs and are also the largest group of users to engage in social networking via the computer[24](O) 3. Technological ? Internet speed is increasing[25] (O) ? Storage capacity on the internet is increasing (O) ? Internet software capabilities are increasing (O) ? Consumers are expecting a greater level of personalization in their web searches, frequently-visited websites, and internet services than in prior years[26] (O) ? Emergence of a new technology called The Internet of Things. This technology is designed to run hardware appliances – such as a refrigerator – as optimally as possible. Also, it runs sensors within appliances that can report back to the user via the internet. For example, in the case of a refrigerator, this technology would report what foods you are running low on and which foods may no longer be safe to eat[27]. e. g. , Google may want to examine providing an internet service designed to connect users with the hardware and software in use – especially via mobile device. )(O) ? 66% of internet users report using search engines when making complex decisions. (O) ? Respondents in the survey listed in the bullet above report only 25% of searches produce needed results the first time. Of these same responde nts, 30% report giving up on the search after failing to receive the desired result[28] (T) 4. Economic ? Period of American and global economic recession[29] (T) ? Fed. Chairman has declared that America’s recession is likely over and expects moderate growth for the next two years. [30] Around half of Google’s users are in the United States (see above). (O) ? An end to the recession in the European Union is expected during the third quarter of this year[31]. Around half of Google’s users are outside the United States (O) ? Federal interest rates are between 0-0. 25%, making capital more affordable for advertising customers and for Google[32] (O) ? Real GDP is expected to be -2. 6 this year but is expected to increase to 2. in the end of next year[33] (O) ? Consumer spending is expected to increase from -0. 9 this year to 1. 1 next year[34] (O) 5. Political – Legal ? Internet crimes (a component of these is copyright infringement), in one year, are estimated to have resulted in losses of $240 million dollars; as opposed to an estimated loss of $198 million dollars as a result of these crimes in the previous year. The increased amount of these crimes is likely to result in increasingly stringent regulations regarding crimes – including intellectual property-related crimes – perpetrated over the internet. The impact to Google is this: Google stores images and written works in their directory – exposing them to potential future legal liability for intellectual property related violations. Google has already been sued for this; Google was forced to remove 100,000 clips of copyrighted material from YouTube and paid out $90 million dollars to one party for a related issue[35] (T) ? Character defamation by anonymous bloggers has resulted in courts forcing companies like Google to reveal the identity of the anonymous blogger to the courts[36] (T). India is issuing subpoenas (or their equivalent) to â€Å"platform† companies like Google, Yahoo, and Microsoft for content displayed on their â€Å"platforms. † The companies have court cases pending against them for content displayed on their sites including: copyright infringement, character defamation, hate messages, and gender selection advertisements[37] (T) B. Task Environment 1. Threat of New Entrants ? Threat of new e ntrants is medium ? Switching costs are virtually non-existent; customers can use search engines for free and can use them apart from other services offered by the company furnishing the search engine. Customers will likely try another search engine if the results they require cannot be obtained quickly and easily from the engine they are using. Google’s advertising customers are not required to sign a long-term contract; nor do they have to make a sizable investment up-front in order to place an ad with Google. Advertisers pay Google for space on their search engine results pages only when customers â€Å"click† on their ads and can therefore switch to another company without large sunk costs. ? Barriers to entry do exist, however, due to the amount of computer equipment necessary to be competitive with the likes of Google and Yahoo. Also, the large competitors within this arena have servers strategically placed all over the world. This may be difficult for a new company to this industry to replicate in a fashion that would make them competitive. Also, the large companies in this industry have vast amounts of information about their customers and online advertisers that would be difficult for a new entrant to amass. [38] 2. Rivalry Among Competitors ? Rivalry among competitors is high ? Google’s competitors (at this time) are all larger companies with large amounts of resources ? Google’s competitors offer other internet services as well as search services. The search engine attracts customers to their other services (for example, dating services, email, and fantasy sports league platforms); which raises the importance of possessing a superior search engine past its importance of a stand-alone service for Google’s competition ? Competition with Microsoft is expected to increase. Microsoft is attempting to integrate a search engine into its operating system and other products [39] ? Google considers Microsoft and Yahoo their greatest competition. These companies have greater cash resources and ability to make acquisitions, a longer operating history, and more established customer and end user relationships. They also operate internet portals and offer more products and services than Google does. In the case of Microsoft, they also have more employees [40] ? Google’s market share in the U. S. internet search market is 31%; Yahoo’s market share is 26% and MSN’s is 20%. This is very close. ? The industry is attractive and margins are high. Google’s success has increased the intensity of competition since these other companies want to share in the financial success ? Microsoft is working to develop a search engine to rival Google’s. This may be in lieu of the MSN search engine mentioned above[41]. This will definitely increase competition dramatically (in the short run at least) as Microsoft throws its resources in promoting their new product and attempting to steal market share from Google. Microsoft has a longer history of marketing than Google does, which may increase rivalry. 3. Bargaining Power of Suppliers ? Bargaining power among suppliers is low ? Google, as an internet-based service firm, requires few raw materials from outside sources. The supplies required, with the exception of electricity, are available from multiple sources ? Potential employees have some power over Google due to the short supply of qualified applicants. According to Google’s CEO, Google was having problems finding applicants that were either not technically proficient enough to complete the task at hand or of â€Å"insufficient quality. † 4. Bargaining Power of Buyers ? Bargaining power among buyers is medium ? Google has 31% of the internet search traffic market share, compared to 26% for Yahoo and 20% for MSN. This strengthens Google’s position with buyers since Google is the industry leader and is therefore more attractive than competitors to advertisers who would like to place ads on search engine results pages ? No buyer of Google’s services is responsible for larger than 3% of Google’s revenues. Because Google’s buyers are fragmented and none are responsible for a large amount of revenues, Google’s buyers do not have much power over Google[42] 5. Threat of Substitutes ? Threat of substitutes is high ? Although there aren’t any true substitutes for a search engine, there are different ways to organize information. In this case, a different method of searching might produce a substitute to the current method that may produce better results ? Yahoo, MSN, AOL, and Microsoft are working to develop search engines that will either equal or exceed the functionality of Google’s search engine and have the resources to allocate to a massive research and development effort. Time will tell whether they are, in fact, viewed as a substitute by search users. ? Google’s search-engine customers value accuracy of search results. Google’s competitors already offer search engines. Google’s competitors may be able to create a comparable search engine over time . Bargaining Power of Other Stakeholders ? Bargaining power of other stakeholders is medium ? Special interest groups, like the American Association of Publishers and the Authors Guild, have sued Google and won for copyright infringement for content used by Google on their Google Print and Google Books applications. These groups a nd other groups are constantly monitoring Google’s actions for incidents of actual or perceived copyright infringement on their applications. [43] ? Google has been forced, as a result of a lawsuit, to reveal the identity of a blogger who wrote offensive comments about a Canadian model. Google may be required to release the identity of other users upon request in the future because of this precedent which may reduce their customer base. [44]This example is meant to illustrate that individuals, as well as organized groups, may have the power to influence Google’s business operations ? Google’s employees have little power to exert when negotiating with Google. Labor within Google is not organized[45] IV. Internal Environment Analysis (IFAS, see Exhibit 2) A. Corporate Structure (See Exhibit 3 for organization chart) ? Google’s corporate structure is primarily functional. 46] ? Google is broken down into five functions: Engineering, Sales, Products, Marketing, Legal, and Finance ? Underneath the overarching functional structure, Google is further broken down into product markets or geographical areas, which technically makes Google’s structure a hybrid of functional, geographic, and product structures. ? Each product market or geographical a rea element under the functional areas is treated as a small business unit. The small business unit element of Google’s structure provides flexibility. B. Corporate Culture ? Corporate culture values innovation and ambidexterity. Employees (including corporate level managers) are encouraged to devote 70% of their time on core business activities, 20% of their time to core-business related projects, and 10% of their time to unrelated new business activities. According to Marissa Mayer (see top management section for job title), around half of Google’s new products are a direct result of actions taken by employees during their free time (S)[47] ? Culture seems to have high degree of intensity and integration ? Culture values include â€Å"an obsessive commitment to creating search perfection and having a great time doing it (S)†[48] ? Other priorities for Google members are innovation and keeping costs low ? Google values ability over experience and encourages everyone to share ideas. Also, Google created an informal atmosphere where anyone can ask the CEO or top management a question and be answered. [49] (S) ? Google’s corporate culture puts emphasis on not exploiting the user of their products. [50] ? Being quirky and having fun are also emphasized. Google’s work area has foosball tables, ping pong tables, volleyball nets, and several other games present (S)[51] C. Corporate Resources 1. Marketing ? Google promotes advertising packages through Google Business Solutions. Information is available to prospective clients on how Google can improve clients’ profitability through their advertising packages (S) ? Services – Google’s advertising customers often see Google’s service team as arrogant and find it time consuming and difficult to do business with Google because Google often switches the team assigned to handling the clients’ business before the clients’ advertising submission is complete (W) ? Google is second to Yahoo in being able to finalize agreements with advertisers (W) ? Television advertising is currently not being utilized by Google. In comparison, Microsoft is showing Television advertisements for their products. TV advertisements may reach a good portion of the older audience and inform â€Å"non-tech-savvy† about their products and services[52] (W) ? Google doesn’t advertise on their home page which is attractive to search customers (S) ? Extremely strong brand. Google has been added to the Oxford dictionary as a verb (S) ? Average sales per click per month were a little under 54. 5. However, Yahoo’s average sales per click were only 53 during the same month. Yahoo is currently Google’s biggest competitor[53] (S) ? â€Å"Adwords† system employed by Google to deliver advertisements is user-friendly for advertisers. Google’s system is also easy for advertising customers to use for changing the advertisement shown on Google’s results pages. (S) ? Product – Google’s search engine is most accurate in the world (O) 2. Finance ? Google’s revenues in 2004 were $3,189,223,000. This is 117. 56% greater than their revenues in 2003, which are $1,465,934,000 (S) ? Google’s cash balance in 2004 was $426,873,000; 186. 5% greater than their cash balance of $148,995,000 in 2003 (S) ? Google’s profit margin was 12. 52% in 2004. Yahoo’s, in 2004 was 23. 49. [54]Microsoft’s profit margin was 22. 17[55](W) ? Google’s quick ratio (acid test) was 7. 18[56] in 2004. Yahoo’s quick ratio in 2004 was 3. 38. Microsoft’s quick ratio in 2004 was 4. 44(S) ? Google’s Return on Assets (ROA)[57] was 21. 05% in 2004. Yahoo’s ROA in 2004 was 11. 83% and Microsoft’s ROA in 2004 was 9. 38%(S) ? Google’s Return on Equity (ROE)[58] was 25. 97% in 2004, as compared to Yahoo’s ROE in 2004 of 14. 65% and Microsoft’s ROE in 2004 of 11. 69%(S) ? Google’s debt to equity ratio was 13. 12% in 2004. Yahoo’s was 29. 24% in 2004 and Microsoft’s was 23. 47% in 2004[59](S) ? Net income was positive in 2002-2004. Net income was $399,119,000 in 2004; an increase of 277. 79% over 2003’s net income of $105,648 (S) 3. Research and Development ? In 2004, Google spent 7. 7% of sales revenues on R&D. This is very low for a tech firm (W) ? R&D is one of Google’s strengths. They have more market share in the search engine market because of the creation of their innovative search engine (S) ? Research and Development efforts have led to the creation of the most-used search engine in the world. Another notable innovation that relates to this is their creati on of a learning search engine. The more a customer uses their search engine, the more it learns and responds to the user’s individual preferences. Due to Google having the largest market share, their engine can learn faster than those offered by the competition which reduces its imitability[60]. (S) ? Google owns 13 registered trademarks and 7 unregistered trademarks as a result of R and D efforts[61](S) 4. Operations and Logistics ? One of Google’s biggest strengths is getting a large volume of users to their websites which makes them very attractive to advertisers (S)[62] ? Google has servers and locations all over the world to improve distribution of services[63] (S) ? Google has the ability to translate their information into over 88 different languages. This improves operations and logistics control when activities are taking place in a non-English- speaking country (S) ? Google’s Adwords system is self-managing; meaning that an advertising customer can change their campaign as their budget changes. This results in quick, efficient adjustments (S) 5. Human Resources Management ? Google employed 2,700 employees in 2005; 900 were â€Å"techies† ? Employees receive many fringe benefits in an effort to make them feel they are a priority. This strengthens corporate culture to a degree. Google has been listed as the top company to work for for two years in a row by Fortune Magazine. Employees have access to free high-end on-site dining facilities, snack stations, gyms, laundry rooms, barbers, massage rooms, dry cleaning, and several other employee fringe benefits[64] (S) ? Google’s CEO, Eric Schmidt, stated that the company was having problems recruiting employees who were both of acceptable caliber and technically proficient (W) ? Google maintains a diverse workforce and hires locals to work in its geographically dispersed locations (S) ? Google has a long hiring process that takes several months to complete. This would be a strength, except the company reported having problems finding people that were both quality employees and technically proficient (W) ? Employees are skilled at multitasking. For example, the individual who created Google’s holiday logo also was responsible for translating Google’s website into Hangul (Korean language) (S) ? Google’s technical employees work 70% of the time on regular business, 20% of the time on new but related business, and 10% of their time on completely new and unrelated projects. This makes Google more adaptable and builds â€Å"ambidexterity† into the organization (S) 6. Information System (IS) ? Google utilizes a system called â€Å"Live Out Loud† to promote communication between employees, to create a searchable database of related projects employees are working on to promote economies of scope and transfer of knowledge, and as a control system. How it works: Google employees weekly send an email to a central source concerning the specifics of the project they are working on and their progress. Google has used the same search engine it employs on its website Google. com to search through the emails to find the relevant ones. Managers simply have to search, using the Google search engine, for the employee’s progress they wish to evaluate. The system is user-friendly for both the employees and managers and it is simple. An employee working on a project can search the system for other relevant projects and obtain useful information they can incorporate when completing their specific task[65]. S) ? Google uses a triple redundancy system to ensure errors don’t disrupt the flow of timely information. If one computer doesn’t respond to an employee’s request for information within a few milliseconds, two others provide the information to the employee. All information is stored in three places. This makes their system very reliable and efficient in delivering timely information (S)[66] ? Google uses a database system called BigTable as part of their manag ement information system. Due to the volume of information Google must manage, Google has developed this software to break apart large files that are too big for any one server into smaller pieces so they can be stored on multiple servers. This ensures that capacity is available for their information[67] (S) ? Many of Google’s basic activities are automated (S) V. Strategic Alternatives and Selected Strategy A. Growth Strategies 1. Enter market providing legal music and video downloading services (S&O) a. Pros: ? Google has the intellectual capital to successfully develop the software to provide this service. Google has already proven that they can provide the search capabilities to link users with their desired songs or videos; their search engine is the most accurate in the world and the popularity of their product YouTube suggests they possess the capabilities to develop a desirable music/video downloading service ? With a large cash balance and the capabilities to obtain financing due to an extremely low debt to equity ratio, Google definitely possesses the financial resources to develop these services and bring them to market ? By providing different but related services, Google will be reducing their â€Å"diversifiable risk†, if you will, by increasing their product portfolio from one successful revenue generating product to several ? There is a large market for these services already in place; this market is likely to grow as digital media becomes more prevalent in society and obsolete technologies such as tapes, CDs, and records further decline ? Google’s brand strength would be beneficial in this market since the music and movie downloading industry is related to Google’s area of expertise (i. . it is equivalent to an industry leader in the manufacture of small power tools diversifying into producing concrete mixers and pumps, rather than the power tool company diversifying into diapers and other baby products. A DeWalt brand logo on a pair of diapers likely won’t transmit the same message of quality and expertise that it would on another type of tool) b. Cons ? Apple iTunes owns 82% of legal music downloading market. [68] Competing with a company that owns this much of the market share and has more experience in this industry will be very difficult ? Increases the probability of copyright infringement lawsuits ? Shifts emphasis away from Google’s core product – the search engine. If the search engine is imitated or surpassed by a better product before Google establishes a dominant position and greater profits and revenues from its new endeavor, Google may lose a large part of its almost sole source of revenues ? Regulation and trends concerning royalties paid to artists and music production companies may reduce the profitability of this industry ? Illegal downloading may increase; thereby reducing the size of the legal downloading market ? Requires maintaining existing advertising business model and creating and maintaining a new switchboard model (connecting multiple buying downloaders with multiple selling digital music and video suppliers 2. Develop new search engine designed for seniors markets – â€Å"Google Golden Life†. New search engine has an option for adjusting the size of the font used on the search pages based on the capabilities of the user’s vision and allows seniors to type in a question instead of just key words. In addition, it will contain a function that completes words for the typist if he or she so chooses (like an internet browser address box does) – concentric diversification (S&O) a. Pros ? First mover advantage could be gained by focusing on this market segment. Seniors have been ignored – for the most part – in the development of online products and services. No company currently caters to the needs of older internet users ? Seniors represent the largest growing demographic of internet users and represent a large segment of all societies ? The baby boomers are aging and will want/demand products focused on their needs soon ? Google possesses the financial resources to make this happen ? Google also possesses the brand strength and awareness to appeal to older users; older individuals tend to like larger, stable, established, well-known companies as opposed to small, new, relatively unknown startups ? Creating products geared toward older users may increase their interest in Google’s existing products ? Utilizes existing advertising business model to obtain revenues from pay-as-you-click advertisements b. Cons ? Today’s older internet user’s wants and needs are poorly understood by the online industry; this makes developing products/services focused at them a risky undertaking in the short-term. Younger baby boomers are familiar with current computer software but current seniors are less familiar and use computers more infrequently and for less activities (i. e. they may email but not shop extensively online) ? Once Google enters this market and proves the market is attractive, competition will increase and profits will likely go down as the market matures ? The idea of marketing online products and services geared toward older users is a newer one but an imitable one; other companies may have a greater understanding of the older consumer than Google since it has focused on products/services for a primarily younger audience with different needs. This means that other companies may prove to be more successful with this market segment than Google because of a greater knowledge of the older consumer ? Older users may only be interested in emailing and may have little interest in clicking on advertisements; thereby lowering the desirability of placing advertisements on Google’s new products ? May be hard to reach market segment to inform them of new product 3. Develop Social Networking System –â€Å"Google Linkage†Ã¢â‚¬â€œ Concentric diversification (S&O) a. Pros ? Facebook and MySpace are both very popular. Today, internet users 12-34 are largest demographic to engage in social networking. As this age group ages, they will likely continue to use social networking sites and younger individuals entering this age group will likely also engage in social networking via the computer; growth in the social networking industry is virtually assured. Why the growth in this industry is important for Google: advertising revenues will likely increase as ads are placed on social networking pages ? Creates the potential for another profitable advertising platform; reduces the reliance on advertising revenues created from one product – the search engine ? May increase interest in Google’s other products (i. e. a social networker uses Google Images to send a picture of a desert rose to another gardener via Google’s networking service) ? Could compliment Google’s existing mission of organizing the world’s information with a new addition to the mission: â€Å"Organizing the world’s information – and people – to make it and them universally accessible. † ? Google’s strong brand and reputation will likely spark interest from social networkers in Google’s new networking platform ? Google has the financial resources to create and advertise a social networking site either alone or through a joint venture ? Utilizes existing advertising business model to obtain revenues from advertisers through Google’s AdWords and AdSense ? Likely inexpensive to maintain once it is â€Å"rolled out† b. Cons ? Social networking market may be saturated. Customers may have all their needs met through Facebook and Myspace. These companies already dominate the industry and have more knowledge and experience in this market ? Google may not be able to provide any new innovations in social networking ? Doesn’t utilize their distinctive search competency ? May not prove profitable after a cost/benefit analysis is conducted since advertisements will be less focused on self-identified market segments. For example, if one conducts an internet search for Echeveria Subrigida seeds – a succulent plant – advertisements related to plants may be of interest to the searcher. However, an ad related to purchasing succulent plants online may not be of much interest to the random individual attempting to contact another individual whose interests and needs are also unknown ? Requires a different set of competencies than Google already possesses. Email is the most basic social networking method and Google did not perform well in creating a popular email system 4. Create open source network for the development of applications for mobile devices – Google Architects – concentric diversification (S & O) a. Pros ? Market is supposed to almost triple in size in the next five years ? Google already has knowledge of how to make internet applications compatible with mobile devices – i. e. connecting Google search engine to mobile devices ? It is forecasted that half of internet users will be mobile internet users ? Google has the financial resources to undertake both the product development and advertising ? Google has experience and ability when it comes to developing internet apps. ? Could be set up to accommodate Google’s existing business model – obtain advertising revenues through offering free products ? Takes advantage of innovative technical staff b. Cons ? Stiff competition – Apple already has a large market share for mobile applications that are used on the iPhone and others. Microsoft, as operating systems become more commoditized, will likely enter the mobile internet applications market ? May not generate much revenue if customers have a finite number of minutes on their mobile plan. Customers in this situation are not likely to engage in gratuitous searching for curiosity’s sake. ? While Google has proven adept at creating applications, their distinctive competency resides in search engine excellence. Developing apps for mobile users requires a different skill set and core competency. Google may not be able to gain competitive advantage in this market since generating applications may not be one their distinctive competencies 5. Create a search service designed to locate music in a superior manner – â€Å"Google Music. † The search system would allow a user to enter in any part of a song, a band name, a song name, or a CD name and the search will provide results that include not only what the searcher is specifically looking for, but also links to the band’s website, links to listening to or downloading a particular song or multiple songs from the artist, and links to other related sites (i. . sites that offer guitar tablature for the artist or song mentioned in the search) a. Pros ? Will attract more users to the Google search engine, which increases the desirability of advertising on Google’s web pages ? Google music will increase brand loyalty and strength as it meets more of Google’s customers’ needs ? Will strengthen the desirability of the search engine for existing customers ? Will capitalize on Google’s distinctive competency of creating a search engine that produces more accurate results than other search engines offered by competitors ? Will address the needs of the large segment of internet users that use the internet for obtaining and enjoying music ? May provide an additional source of revenues from bands that would like to advertise their products on Google Music’s results pages b. Cons ? Users can already find all of these items using the traditional Google search engine ? Will likely add little to Google’s revenue stream ? Doesn’t address the problem of Google only possessing one profitable product ? Doesn’t truly meet the needs of internet music users since it doesn’t allow users to download music directly from Google ? Most of the results will likely be advertisements. Users may not want to search through advertisements B. Stability Strategies 1. Pause/Proceed with Caution – Use resources to improve existing search engine until threat from Microsoft’s new search engine can be determined and countered. Then grow (S & T) a. Pros ? 99% of revenues are generated from ads placed on search engine pages – Google already dominates market for search services – this must be protected in the short term to protect the sustainability of Google as a company ? Google is currently doing well and doesn’t need to grow to stay in business in the short term ? Financial resources may be needed to counter Microsoft’s efforts to gain position in the search market ? Reinforces Google’s distinctive competencies ? Also allows for the economy to improve before expanding; advertisers may need to rest as well before further investing in ads in non-search related areas b. Cons ? Market dominance in the mobile applications market is being determined now. The opportunity to be the first to focus products toward seniors is open right now. The other opportunities presented above also are available now but may not be in the future ? Doesn’t address the problem and risk of having only one major income-producing product ? Google has the financial resources and ability to obtain further resources if necessary; there are no critical reasons not to grow ? Is only a short-term fix and may cause growth to be put off too long C. Retrenchment Strategies – Google, at this time, has no reason to retrench and should therefore stay away from adopting a retrenchment strategy. It is in good financial condition, its products are still desirable, and it has little to no chance of failing in the short term. D. Adopted strategy – Concentric diversification into mobile applications (Google Architect), music search services (Google Music), and products focused on older internet users (Google Golden Life), combined with investment in maintaining the superiority of the search engine. ? Rationale – both diversifying into mobile applications and products focused on older users deals with seizing opportunities by using organizational strengths (R&D, financial resources ,etc). Both areas represent growing markets and several opportunities to fill emerging or existing needs. Older users are the largest growing segment of internet users and mobile users are expected almost triple in the next five years to finally make up almost half of all internet users. Both allow focused advertising based on known customer needs and interests (the type of application utilized points out the interest – i. e. a customer uses an app to learn a new guitar chord; obviously the user has an interest in the guitar. Also, advertising can be focused on the users of the open forum. Both hardware and software tech companies can advertise on the forum. Elderly people have several universal needs and likely popular interests) and the use of the existing business model. By developing Google Music, Google will further strengthen their best product – the search engine – as well as utilize their distinctive competencies in search engine creation. This strategy diversifies the risk of having one profitable product, which eliminates a major organizational weakness, and is financially feasible given existing resources. The strategy doesn’t face a major threat of being derailed due to organizational weaknesses and outside threats don’t directly threaten the diversification efforts. Google would face virtually no competition by entering the market to deliver online products and services to older users and has the rare opportunity to obtain first mover advantage on a large scale (there are numerous elderly people in the world). Diversifying into these areas has a higher probability of success and is less risky than entering the social networking and downloading markets. Neither of these two areas of diversification would require major shifts in technological knowledge and would utilize the intellectual capital present in Google’s existing staff. This strategy does require an allocation of financial resources toward maintaining the superiority of the search engine because Google must rely on it for success in the short term and will aid in Google’s success over the long term. It represents their distinctive competencies and must be protected at all costs. Adding capital and effort to improving the search engine would not be mutually exclusive with the diversification strategy since Google possesses a large cash balance and a low debt ratio. Given Google’s situation, both parts – the concentric diversification and the concentration on the search engine should be focused on simultaneously. ? This corporate strategy requires a business level strategy of differentiation and functional level strategies of technology pioneer/leader in R&D and a product development strategy within Marketing E. Implementation 1. Product One (Google Golden Life -search engine designed for seniors markets. New search engine has an option for adjusting the size of the font used on the search pages based on the capabilities of the user’s vision and allows seniors to type in a question instead of just key words. In addition, it will contain a function that completes words for the typist if he or she so chooses (like an internet browser address box does) ? Product R&D should be allocated 2% of 2004 sales revenues for two years ($63,784,460/year) ? Organizational members must be chosen to head the new program and participate on R&D teams ? Required new activities must be evaluated for conflict with existing operating activities. ? At least two deadlines must be given to the teams: the first, a working beta version of the product must be created by the end of the project’s first year of existence. Second, a final product that is ready for use on the internet must be in place at the end of a year and a half. After the beta version is released, a team should be given a $1 million budget to obtain and forward on suggestions provided by older users on how to fit the program to their needs. Duration of team: 1 year. ? ROI after year two must be 6% or more and must be at least 10% by the end of year 5 ? Market share (of the existing older internet users) must be 5% at the end of year two and 20% or over after year 5 ? An updated version must be made available by the end of year two ? A flexible budget must be created for year o ne and year two. Pro forma income statements and balance sheets should be created for at least year two and five ? New product must make up at least 2% of total revenues by year two and at least 5% by the end of year five. ? Access to intranet databases must be given to staff working on both diversification products so that a. The wheel isn’t reinvented and, b. Learning can be transferred throughout the organization if relevant pieces of information are discovered during the creation of the new products ? Product must be available in at least three languages by the end of year 2 and 15 languages by the end of year 5 ? Economic value added should be positive at the end of year three 2. Product 2 (Google Architect – open source network for the development of applications for mobile devices) ? Product R&D should be allocated 1% of 2004 sales revenues for 2 years ($31,892,230/yr) ? Organizational members must be chosen to head the new program and participate on R&D teams ? Required new activities must be evaluated for conflict with existing operating activities. At least two deadlines must be given to the teams: the first, a working beta version of the product must be created by the end of the project’s first year of existence. Second, a complete product must be in place at the end of a year and a half ? ROI after year two must be 7% or more and must be at least 10% by the end of year 5 ? A flexible budget must be created for year one and year two. Pro forma income statement s and balance sheets should be created for at least year two and five ? New product must make up at least 3% of total revenues by year two and at least 6% by the end of year five. Access to intranet databases must be given to staff working on both diversification products so that cross pollination of ideas between projects can occur ? Product must be available in at least five languages by the end of year 2 and 20 languages by the end of year 5 ? After the beta version is released, a team should be given a $1 million budget to obtain and forward on suggestions provided by older users on how to fit the program to their needs. Duration of team: 1 year. ? Economic value added should be positive after year three 3. Product 3 (Google Music – The search system would allow a user to enter in any part of a song, a band name, a song name, or a CD name and the search will provide results that include not only what the searcher is specifically looking for, but also links to the band’s website, links to listening to or downloading a particular song or multiple songs from the artist, and links to other related sites (i. e. sites that offer guitar tablature for the artist or song mentioned in the search) ? Product R&D should be allocated 1% of 2004 sales revenues for 2 years ($31,892,230/yr) ? Organizational members must be chosen to head the new program and participate on R&D teams ? Required new activities must be evaluated for conflict with existing operating activities. ? At least two deadlines must be given to the teams: the first, a working beta version of the product must be created by the end of the project’s first year of existence. Second, a complete product must be in place at the end of a year and a half ? ROI after year two must be 7% or more and must be at least 10% by the end of year 5 ? A flexible budget must be created for year one and year two. Pro forma income statements and balance sheets should be created for at least year two and five ? New product must make up at least 1% of total revenues by year two and at least 2% by the end of year five. ? Access to intranet databases must be given to staff working on both diversification products so that cross pollination of ideas between projects can occur ? Product must be available in at least five languages by the end of year two and ten languages by the end of year five ? Economic value added should be positive after the year following the release date VI. Evaluation and Control A. Product 1 (Google Golden Life) ? Management should ensure a beta version is complete by the end of year one and a complete version is ready to be released on the internet by one and a half years ? Dupont Return on Investment (ROI) calculation (net profit margin x total asset turnover) should be used to verify whether or not ROI in year two meets or exceeds 6% in year two and 10% in year five. Management should audit the expenditures of the customer satisfaction team quarterly to determine if the team in charge of obtaining feedback by customers is staying within the budget and whether the budgeted amount of $1 million is adequate ? Management should determine whether or not market share (of the existing older internet users) is 5% at the end of year two and 20% or over after year 5 ? Management should ensure that a new version is available at the end of year two ? Management should evaluate product to verify whether or not it is earning 2% of revenues at the end of year two and 5% of revenues after year five. ? Product should be evaluated at the end of year two to ensure it has been translated into at least three languages and 15 or more languages after year five is complete ? Success of site should also be determined by whether or not it gets at least 10 million hits per month (eyeballs) after year two and 40 million hits per month by the end of year five ? Economic Value Added (EVA) should be positive at the end of year three B. Product 2 – Google architect ? Management should check to make sure that deadlines have been reached concerning the beta version of the product after year one and the first, complete version is completed by one and a half years after the start of the project ? Dupont Return on Investment (ROI) calculation (net profit