Google Inc.

Company Analysis

Contents

I. Company overview

II.  External environment analysis

III. Strengths and weakness analysis

IV. Corporate and Business level strategy

V. Strategy implementation: structure and culture

VI. Strategy implementation: financial performance

VII.  Remark and recommendation

VIII.     References

Company Overview

Google Inc., American Search Engine Company was founded in 1998 by Sergey Brin and Larry Page that is a subsidiary of the holding company Alphabet Inc. (Hosch & Hall, 2015).Its headquarters – Google plex is in Mountain View, California. The domain google.com was registered on September 14^th, 1997 and Google Corporation was formed a year later in September 1998. “More than 70 percent of worldwide online search requests are handled by Google, placing it at the heart of most Internet users’ experience” (Hosch & Hall, 2015). Google began as an online search firm but nowadays it deals with research, cloud computing, advertising and provides the wide variety of products and services. Some of its renowned services are Gmail, YouTube, Google News, Google Maps, Google Earth, Google Chrome, Google Drive, Google+, Google Nexus etc.

Google is specializing in web- based products like search tools, advertising services, communication and publishing tools, development tools, security tools, statistical tools, operating system like Android, and Chrome OS, desktop applications, mobile applications that includes mobile web applications and mobile standalone applications, various hardware like Google driverless car, Google Nexus, Google TV, Google Glass, Pixel and services like Google Cloud Platform, Google Cast etc. “Google has come a long way from its modest beginnings as a university project called the Backrub (Saha, 2005) to a billion-dollar company”. Google’s success continued growing at a very fast pace that it released several versions of Google, including ten new languages in 2000. In the same year, Google launched AdWords, its advertising network that sells advertisements associated with key search words (Kollewe, 2008). Google launched Gmail in 2004 and acquired Keyhole, Inc. in 2004 which gave birth to Google Earth and Google Maps. Google acquired video-sharing site YouTube in 2006 and Android in 2005, DoubleClick in 2007 (Kollewe, 2008) which has been fulfilling the goal of Google to organize the world’s information and make it universally accessible and useful. Android has a large number of developers coding to develop the software for the functionality of smartphones. Google is constantly updating its algorithm to meet constantly changing user’s need.

Google had Yahoo have entered into an agreement that makes Google, one of the fastest growing search engines on the Web, Yahoo’s default search results provider. (Stubo & McCaffrey, 2000). Google launched its own browser Chrome in 2008 with consequent development of Google Suggest, Google Search Options which has made Google a global technology leader. Google’s Nexus line of Mobile devices was introduced in the market in 2010 and it became the first company to launch a website revealing information about requests it receives from the government (Neal, 2013).  Larry Page announced as CEO and he introduced first Google Chromebook and Google + in April 2011.Google expanded its service to Google Fiber in Kansas City that provides high-speed internet access in 2012. Google also to face criticism about issues like privacy, copyright, and censorship in 2011.

Google aspires to build innovative products in web search and advertising due to which Google is the top website and the most recognized brand in the world. Google announced a corporate restructuring forming an umbrella company called Alphabet and Sundar Pichai as new CEO of Google in 2015(Kelly,2015). Alphabet will operate as the parent company for a number of smaller companies, including Google, which will continue to focus on Internet products. Android, YouTube, apps, search, maps, and ads will remain part of Google Inc. (Kelly, 2015). Google Ventures, Google Capital, Google X lab, Fiber, Calico, Nest, Robotics division, Google DeepMind, and Google’s Life Sciences will function under parent company Alphabet. This means Alphabet is wholly owned subsidiary of Google. Thus, now Google will focus intensively on its traditional products like Chrome, Google search engine, Google Play more and YouTube.

“There are more than 2.3 million Google searches per minute, which adds up to more than 100,000,000,000 Google searches per month” (D’Onofro, 2016). Google Maps is part of Google’s core business and now has more than 1 billion monthly users. Google’s team aims to make Google’s services faster and more reliable for users. Google AdSense lets publishers earn money from online content, placing ads on publishers’ webpages which are major sources of revenue for Google (Google Inc.). Google Cloud Platform provides unlimited supercomputing power for companies. As of December 31, 2016, Google had 72,053 full-time employees: 27,169 in research and development, 20,902 in sales and marketing, 14,287 in operations, and 9,695 in general and administrative functions (Alphabet Inc. Annual Report 2017).

II. External Environment Analysis

PESTEL Analysis

1. Political Environment

• Government Stability
• Stable political environment in major markets
• Censorship issues

The strong government and the political stability in US and other major markets has helped Google to expand its business continuously. Google collects lots of private and sensitive information which is considered as the threat by some countries such as China. Google had to undergo censorship issues as it broadcasted sensitive political issues in China. Chinese state media often accuses Google of playing an active role in exporting culture, value, and ideas rather than conducting appropriate business practices (Dudovskiy,2015). Further, the Project Loon, an initiative to provide the internet in rural areas via cell towers and balloons is perceived as undercover to conduct espionage activities by US intelligence services (Dudovskiy,2015). China has its own state-sponsored online companies like Baidu which is a threat to Google. Google often gets pressure from U.S. government for stashing its earnings in foreign banks to avoid taxes. Google is affected directly or indirectly by activities of international pressure groups such as One World Broadcasting Trust which is a recent example of political factor affecting the revenue of Google (Dudovskiy, 2015). Google is negligibly affected by employment laws and environment protection laws.

2. Economic Factors

• Economic growth of developing countries
• Impact of global economic crisis
• Impact of macro-economic factors

Google is affected by macro-economic factors such as USD rates, inflation rates, interest rates, tax regulations. The revenue of Google overseas is exposed to foreign exchange rate fluctuations, liquidity, credit deteriorations. The large revenue that Google keeps in the foreign market makes it more vulnerable to exchange rate risks. The rapid growth of developing countries and economic stability of major markets has created growing number of users; with this Google has established better services and products for their users. Google was able to maintain its constant growth in spite of an economic downturn in 2009 in compared to other companies. The inflation rate in countries like India, UK, and South America is increasing which means Google gets more profit through click per ad and advertisement. Google is able to cope with global economic crisis and position itself as leadership in the e-commerce industry.

3. Socio-Cultural Environment

• Increase use of mobile phones
• Growing use of social media like Facebook
• Popular suspicion and distrust of Google

Google is greatly affected by customer’s attitudes, consumer electronics products, and services, the wealth of target customers and demographic changes. With the increase in mobile users, use of laptops and computers are declining. Most of the searches are done through mobile devices so its advertising revenue is generated from mobile phones and other new formats. But the introduction of an android operating system has benefitted Google through Google Play store, Gmail, and Google+. People use Google to google restaurants, quick search, sports score etc. Similarly, social media such as Facebook, WhatsApp is dominating the market which means less use of search engine. Customers use Amazon as a search tool for online shopping which was done initially through Google. Amazon is also offering video content that is inaccessible via YouTube.  Facebook is gaining market through online advertisement. This clearly shows the traditional search engine is being replaced by other social media and websites. Many people often think Google as encroaching their private life matters as Google collects all personal information.

4. Technological environment

• Extensive investment in research and development.
• Growing sophistication apps that bypass search engines
• Expanding its services to hardware technology

Google has acquired 127 companies in 2014(Farzad,2014) which means it is expanding its consumer segments from search engine to various other segments like Home automation devices, Airborne wind turbines, Self-driving car, Robotics etc.  Google invested $ 12.3 billion in research and development in 2015 ((Alphabet Inc. Annual Report, 2016). Google is facing competition from Apple as Apple product has its own search engine. Amazon has dominated online shopping search and Microsoft even has an effective search engine as Google Chrome. With rapid development of apps, there is a possibility to replace traditional Google services. For example, the online ad blocker app harms Google business of generating revenue through ads. Its competitors are developing apps that allow customers to bypass Google Search engine which will negatively affect the revenue of Google. It is crucial for Google to search better alternative to sustain its business.

5. Environmental Factor

• Focus on sustainable business

Google has to ensure their users are safe from hackers, fraudsters and internet risks, and scams.  Google consumes large source of electricity to maintain data and information which affects natural resources in long run. Google has a culture of friendly and warm environment for its employees with large incentives that not only focuses on profit but overall development of its employees. Google is also developing technologies such as effective energy sources to mitigate ecological hazards.

6. Legal Environment

• Legal restrictions on its operations
• Increase in legal costs

Google is expanding its segment to venture capital markets, automobiles, and telecommunications which have more legal restrictions. Its financial sector can be costly as other insurance companies and financial companies require more legal costs. Google owns a large number of patents which invites disputes over ownership if not operated legally and these intellectual property claims are costly to defend. Google is subjected to numerous U.S. and foreign laws and regulations that protect innovations and defend claims of patent infringement.

Summary

Google is a platform that provides easy access to private and sensitive information about world’s politics to the users. Google is an exceptional company that is negligibly affected by political and, economic condition of the world. The strong government and the political stability in US and other major markets has helped Google to expand its business continuously which is the greatest opportunity for Google. It is able to use its culture of innovation to maintain the competitive advantage in the industry through rigorous technological advancement and meeting public needs. It is crucial for Google to operate cost-effectively protecting energy resources and within legal regulations in the whole world. Its strategy of organizing world’s information and making information universally accessible and useful and revenue model outstands its brand image and performance.

Porter’s Five Forces Model

1. Rivalry among established companies- High

Google faces strong competitive rivalry among established companies like Yahoo, Microsoft’s Bing, Yandex, Baidu, Naver, Web Crawler, MyWebSearch (search engines), LinkedIn (job queries), Facebook, Twitter (social network), Amazon, eBay (e-commerce) and others forms of advertising such as television, newspaper, magazines, yellow pages. Although Google enjoys large economies of scale, strong customer base, market share is unevenly distributed among existing competitors that creates advertising and legal battles. “If Google does not continue to innovate and provide products and services that are useful to users, its revenues and operating results will be seriously affected” (Alphabet Inc. Annual Report, 2016). Its competitors are constantly developing innovations in search, online advertising, wireless mobile devices, operating systems, and many other web-based products and services (Alphabet Inc. Annual Report, 2016) which is a huge threat for Google. Competing successfully depends heavily on its ability to rapidly deliver innovative products and technologies to the market and retain it among users (Alphabet Inc. Annual Report, 2016).

2. Threat of New Entrants- Moderate

The threat of new entrants is moderate for Google. It is costly for new entrants to enter the market and directly compete with Google due to the high cost of brand development. It is often an easy job for new entrants to enter into internet sector due to weak regulatory requirements and create its own algorithms of search engines but it is difficult to gain popularity and name recognition. The Android operating system can be created in different version easily. For instance, Amazon used Android system to develop its Kindle Fire app in 2011 that replaced Google apps with Amazon apps. Also, Gmail, YouTube, and Google Docs compete directly with new and established companies.

3. Threat of Substitutes- Low

The internet has a low barrier to entry and is large in scope. It has no switching cost and users often demand accurate and quick search engines. The low switching costs make it easier to transfer advertising from Google to other substitutes. Most of the search engines at present are not substitute each other as Google is the leader. Yahoo and Bing are way back than Google in case of search engine whereas Amazon and Facebook are compelling substitutes. Google earns its maximum revenue from advertising and reduced spending by advertisers could affect its revenue. So, Google has a low threat of substitutes.

4. Bargaining Power of Buyers- Low-Moderate

The bargaining power of buyers is low for Google at one point as individuals have small influence on overall revenues of Google and its services are of free cost to the public. Google collects revenue from individuals only when they click on the ads. The advertisers are the major source of income for Google. On the other hand, buyers use those search engines which provides them reliable and accurate information so it is easier for people to get services from other companies. At the present context, bargaining power of buyers is increasing due to the availability of alternatives.

5. Bargaining power of the suppliers- Low

The bargaining power of the suppliers is low as Google is the leader in e-commerce industry. Its business depends largely upon users, advertisers, and Google Network members. Since Google is able to provide high quality, innovative products, and services, many advertisers choose Google to publicize their products or services. Google generated 90% of its revenue from advertising in 2015(Alphabet Inc. Annual Report, 2016). Google is thriving to attract more customers, increase brand awareness and lead new sales so that its partners chooses to spend money on advertising. It is clear that bargaining power of suppliers remain low till Google leads the technology market.

Summary

Google is rapidly growing and is constantly tackling the intense competition domestically and internationally. Although Google faces technological, economical and legal challenges, it invests significant resources in research and development to provide quality services free of cost to the people. The buying power of users is increasing due to heavy use of search engine in daily lives and development of new technologies. The absence of switching cost and barriers to entry and buyers’ preferences imposes the threat to Google. One of the prominent threat is most of the Google tools are also operated in Apple and Microsoft. If these companies change their operating system that denies Google’s application, Google will lose its revenue from advertisers in future. However, Google is best at serving its users and its cost-effective strategy to deliver online advertising attracts more suppliers. Thus, it is challenging for its competitors like Facebook, Microsoft, Baidu, Amazon, and Baidu to beat Google.

III. SWOT Analysis