1.Google believed in capability based advantage. Search engine market before Google, was dominated by Yahoo so Google never had the first mover advantage.
Downstream competitive advantage: Innovation and Expansion of its traditional Web Internet services. Brin & Page saw this unmet need for a quicker and better search engine and developed an all-together new algorithm for Google, providing benefit of relevant, to the point, and quick search.
1998: PageRankTM Algorithm favored pages that were referred by other pages and was determined by counting its inbound link. Till now the only source of revenue was licensing search technology to other search engines, no advertising revenues.
Dec 1999: Paid Listing, cost per impression basis, i.e. they changed advertisers each time user views thread irrespective of clicking on the link.
Mid 2001: Without spending on Marketing, Google became the 9th largest website in US.
2002: Google adopted a variant of cost per click (CPC) model. They weighted CPC by actual click through rate (CTR) to its expected CTR, i.e. Ads with higher CTR received more prominent position and vice-versa. This maximized their revenue.
Google launches Froogle, a product search that identifies merchants for specific products along with prices. Merchants paid neither for their products to appear nor for referral fees when user clicked.
May 2002: AOL switches fully to Google Algorithm and paid listing.
March 2003: Launches contextual paid listing called AdSense, presented Ads on webpages with primarily editorial context.
Jan 2004: Google launched personalized search, worked as per users past search and also provided history of searches. Google improved feature by offering advertisers free software to optimize paid listing campaigns.
2004: Google market share surpasses Yahoo and grows to 58.4% by 2007 and 65.6% by 2009.
Factors affecting Paid Listing Revenues:
Coverage Rate referred to share of queries for which at-least one paid listing was sold.
Click Through rate increases over time as advertisers improve keywords.
Average Cost per Click increases with size of paid listing provider Advertiser’s base. {Overture’s CPC: $0.40/click compared to Google’s CPC: $0.30/click}
Revenue Splits, percentages of Ad revenue listing providers pay to network affiliates (Hard fought deal – 90% revenue, Normally – 60% to 70% share)
Advertisers believed Google Ads to be effective while online publishers struggled to charge even $2 per 1000 clicks; Google charged that amount for a click.

Upstream Competitive advantage: Acquisitions, projects and alliances.
Result: Value Chain pipeline keeps feeding the customers as and when required, not only to vouch for but equally making it difficult to replicate by competitors.

These differentiation factors created and captured value for Google, which made customers pay more for than it costs Google to provide them. Google’s competitive advantage is its position as a dominant incumbent search engine and higher returns on its capabilities. Google have focused on the challenges, opportunities and un-met needs posted by the external environment and found an advantageous and defensible position within the industry.