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Google Strategy Analysis

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CASE 5: Google’s Strategy in 2009

1. BACKGROUND INFORMATION
|Timeframe |Country(s) Involved |Key Individuals & Titles |Company Type & Size |
| | | |Google is one of the leading internet technology and |
|1994-2009 |USA, Worldwide |Larry Page and Sergey Brin – founders|advertising companies in the world. The company generates 97% |
| | |David Filo – Yahoo Co-founder |of its revenues in both 2008 and 2009 from its search-based |
| | |Erick Schmidt - CEO |advertisers. Besides, it maintains a large index of web sites |
| | | |and other online content, which are freely available through |
| | | |its search engine. |

2. BRIEF SUMMARY OF CASE SITUATION
|Business or Industry Description |Particular Company Situation |
|The industry includes enterprises that operate search engines, internet portals and| |
|other types of websites that display advertisements. Websites attract users by |The case describes the successful story of the company development,|
|offering a range of mostly free services such as internet search, e-mail, news, |its features and possibilities as well as its financial standing |
|social networking, entertainment and all forms of information. |and good performance during the recession period. |

3. INDUSTRY AND COMPETITIVE ANALYSIS

|Dominant Economic Characteristics |Strategic Group MAP |
|Industry includes about 2,300 companies with combined annual revenue of | |
|about $34 billion and projected annual growth rate of 4.9% | |
|The industry is consolidated with three major competitors: Google, Yahoo and|Image, |
|Microsoft. |Price, |
|All the companies compete on the global level. | |
|There is a need to continually innovate, expenditures for innovation | |
|constitute almost 13.7 % | |
|The primary driver of demand is the number of domestic and international | |
|internet users. | |
|Search engines have advantage in advertising over print and TV because they | |
|are cheaper and more effective. | |
| | |
| | |
| | |
| | |
| |Merchandise variety |
| | |
| | |
| | |
|Industry Driving Forces | |
|Search Engine Industry is still growing. | |
|I think that one of the driving forces is the availability of Internet | |
|connection in household and technology innovation that may lead to the | |
|increase in demand for web-advertisement and hence greater profits. It can | |
|also be project that with technology development this industry will expand | |
|into new markets. Increasing globalization of the industry will open the | |
|doors to new emerging markets. | |
|Competitor Strategies |Key Success Factors |
|Google, Yahoo and Microsoft generate about 90% of the industry total |Brand name establishment |
|revenue. Microsoft and Yahoo made an agreement in attempt to protect |Loyal customer base |
|themselves from fast growing Google. Google`s competitors are trying to |Ability to innovate |
|purchase other website in attempt to create more traffic for example |Consumer friendly/ easy to use product |
|Microsoft owns a share in facebook. |New products development |
| |Attractive pricing policy |
| |Skilled workforce |
| |Intellectual property protection |
| | |
|Summary of Industry Attractiveness |
|As I mentioned before this industry is growing and is very attractive from the profit point of view. Within a decade Google has gone from generating no |
|income to the revenue of 29,1 billion in 2010. The only downturn is highly concentrated competition. |

4. ORGANIZATIONAL ANALYSIS

|Company Strengths |Company Weaknesses |
|1. Search accuracy |1. Lack of product integration | |
|2. Good financial standing |2. Coordination problem due to rapid growth and acquisition pace |
|3. Loyal customer base |3. low presence in networking sites |
|4. Strong infrastructure base |4. profits depend on advertising only |
|5. Innovative technologies | |
|Company’s Strategy |
| |
|I think that Google`s strategy is to dominate web-based advertising. Since 2004 the company was growing and developing in order to accommodate |
|advertising option not only on their search-engine website but also on other sites as YouTube, and going into advertising on mobile devices. |
|Company’s Business Model |
|Since 2000 the company`s revenues were based on the income from internet advertisement. Google`s customers can create text-based ads that pop-out |
|alongside search results. Google also offers different payment options: cost-per-impression or cost-per-click. |
|Overall Organizational Assessment |
|Google is a strong company dominating the industry with clear intent to be the first one in web-based advertisement. Aside from that the company |
|keeps developing in other directions as mobile devices (Android) and advertisement on mobile devices. |

5. COMPANY FINANCIAL ANALYSIS (Ratios, Trends, and Overall Financial Health)
|The company`s financial standing is strong. The income has been constantly growing from $ 6, 985 000 in 2001 to $ 4, 226, 858 000 in 2008. Google |
|reported revenues of $5.70 billion in the fourth quarter of 2008, representing an 18% increase over fourth quarter 2007 revenues of $4.83 billion and a |
|3% increase over third quarter 2008 revenues of $5.54 billion. Google's current ratio was 17.2 in 2008 and this means that Google's creditworthiness is |
|relatively high meaning that it can easily obtain funds to finance its operations. In 2008 the debt to assets ratio was 0.03 for Google this means that |
|the net worth of Google is pretty high. |

6. EXTERNAL SITUATION

|Opportunities |
|Growth in Internet Advertising Market, Growing mobile advertising market, New acquisitions |
|Threats |Risks/Constraints |
|Intense competition from Yahoo and Microsoft, |The cost-per click system is very confusing and risky it can be an |
|Privacy issues regarding content ownership |advantage but it also may turn a lot of potential clients away. If Google |
|Legal trials and lawsuits |decides to merge with some other company or portal there is a risk of |
| |losing its brand-name. |

7. STRATEGIC ANALYSIS
|SWOT Analysis (graph + narrative) | [Narrative summary of model analysis results) |
| | |
| |I think that Google Should follow the aggressive strategy. It is a strong |
| |company with lots of Strengths and Opportunities. They definitely have to |
| |keep growing and dominating the market as it is highly competitive. But at|
| |the same time they should always pay attention to possible risks that can |
| |be on the way. |
| | |
| | |
| | |

8. MODELS
Five-Forces Model
|NEW ENTRANTS – LOW |SUPPLIERS – LOW |
|High costs to obtain search technologies and expensive equipments | |
| |High competition among suppliers of software and hardware as there are a lot|
|High Sales & marketing expenses to promote brand and improve relationships |of companies in the industry. |
|with advertisers, customers and partners. | |
| |Supplier bargaining power is low as Google` s revenues are based on web |
|Economies of scale. |advertisement because the advertiser – is its customer. |
| | |
|Microsoft and Yahoo improved their search engines making it difficult for | |
|other companies to enter the market. | |
| | |
|But there is still an opportunity that someone will come up with a better | |
|search engine | |
|BUYERS – LOW |SUBSTITUTES – LOW |
|Search industry is important for buyers. |The search industry is not seeing any obvious substitutes to replace its |
| |functionality for the Internet-users in the near future. And as one of the |
|99% of Google revenues come from advertising but one single client does not |most efficient means to communicate with customers, search doesn’t seem to |
|input more that 3% to the total, this means that a single buyer has no |have perfect substitutes even in the advertising industry |
|effect on the company production. | |
| | |
|The presence of switching costs also reduces customer’s negotiating power | |
|Industry Rivalry – high |Summary of the Competitive Nature of the Industry |
| | |
|Equally Balanced Competitors |The industry seems to be very attractive and the companies that already |
| |operate in it have strong standing, not having much influence from suppliers|
|The leading three Internet searches providers dominate more than 90% of the |and buyers. The entry barriers are low ensuring the absence of new |
|total market share |competitors. The industry is new and growing and no substitutes are expected|
| |to appear. But the competition is very high. |
|Each dominant players possess strong resources but relatively equal power to| |
|compete with each other. | |

|Generic Strategy Model |Narrative summary of model analysis results |
|[pic] |I think that Goggle should follow differentiation strategy. |
| |Because the competition in the industry is high they will |
| |attract customers with their uniqueness. They`ve gained their |
| |popularity and well-recognized brand name by providing unique |
| |technology and accurate search results. |
|Competitive Strength Assessment |Narrative summary of model analysis results |
| | |
| |I think that Google has a very strong position dominating the |
|Google |market and it is closely followed by Yahoo. It has great |
|Microscoft |potential in developing new technologies and its reputation is|
|Yahoo |very good. The customer service is good in all companies. |
| |Google lacks product diversification and because of great |
|Quality/Product Performance |amount of spam the quality of search results is suffering. |
| | |
|8 | |
|5 | |
|7 | |
| | |
|Reputation/ Image | |
| | |
|10 | |
|7 | |
|8 | |
| | |
|Manufacturing Capability | |
| | |
|10 | |
|10 | |
|10 | |
| | |
|Technological Skill | |
| | |
|10 | |
|8 | |
|8 | |
| | |
|Dealer Network/Distribution Capability | |
| | |
|8 | |
|10 | |
|10 | |
| | |
|New Product Innovation Capability | |
| | |
|10 | |
|9 | |
|8 | |
| | |
|Financial Resources | |
| | |
|10 | |
|7 | |
|8 | |
| | |
|Relative Cost Position | |
| | |
|9 | |
|7 | |
|8 | |
| | |
|Customer Service Capabilities | |
| | |
|__9____ | |
|__9____ | |
|___9__ | |
| | |
|Unweighted Overall Strength Rating | |
| | |
|84 | |
|72 | |
|76 | |
| | |

9. Model Guidance (What do the models suggest?)
|Strategic Map: Google occupies the leading position in the market. |
|SWOT: Google could have a promising future by globally strengthening its dominant position in search-based online advertising as well as expanding to |
|the mobile search and business applications market for diversification. |
|Five-Forces: Very attractive industry to be in with low possibility of new entrants and absence of substitutes. The only drawback is very high |
|competition. |
|Generic Strategy: The company is distinguished by its unique features as well recognized brand-name due to good customer service and accurate search |
|results. |
|Competitive Strength Assessment: Google dominates the market but is closely followed by its major competitors. |

10. STRATEGIC ALTERNATIVES
|# 1 Improve the capability of the search engine (search engine industry should|#2 Diversification of products and services (introducing messengers and |
|keep developing and introducing new technologies) Getting more users will help|trying to go to networking industry) |
|the company get more advertisers. | |
|#3 Penetration into new emerging markets establishing itself as good and |#4 Keep developing and promoting Cloud Computing. |
|reliable company | |
| | |
| | |

11. ORGANIZATIONAL GOALS/OBJECTIVES

|Key Goals/Objectives |
| |
|The goal for Google is to be the best in search and web advertisement and focus on innovation. |
| |

12. Evaluating Alternatives “Tests of a Winning Strategy”

|How do these alternatives rate? |Alt #1 |Alt #2 |Alt #3 |Alt #4 |
|Does the strategy fit the situation (Y/N)? |y |y |y |y |
|Will the strategy achieve a sustainable competitive |y |y |y |y |
|advantage (Y/N)? | | | | |
|Will the strategy result in better company performance |y |m |m |m |
|(Y/N)? | | | | |
|Summary (Good or Poor choice?) |good |ok |ok |ok |

13. RECOMMENDED STRATEGY/POLICY
|# 1 Improve the capability of the search engine (search engine industry should keep developing and introducing new technologies) Getting more users will |
|help the company get more advertisers. |

14. UPDATE: How is Google doing? What is it current strategy?
| |
|Google keeps developing and introducing new features but its strategy remains the same - to be the first in search engines and web advertisement. Starting|
|from April 4, Larry Page, Google Co-Founder, will take charge of Google's day-to-day operations as Chief Executive Officer. Sergey Brin, Google Co-Founder,|
|will devote his energy to strategic projects, in particular working on new products. Eric Schmidt will assume the role of Executive Chairman, focusing |
|externally on deals, partnerships, customers and broader business relationships, government outreach and technology thought leadership. Google reported |
|revenues of $8.44 billion for the quarter ended December 31, 2010, an increase of 26% compared to the fourth quarter of 2009. |

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[pic]

Google, yahoo

Microsoft,
Aol

Other small companies

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