Google Inc: Executive Summary
Google is a research project gone golden, an innovator and a leader, and an investor’s dream. It is a company that has brought a new stature into the world of business. Technology is always new; however, Google has turned technology into something everyone can access and use. They have turned the internet into a place welcomed by children, students, professionals, and senior citizens alike.
When Larry Page and Sergey Brin began creating the internet sensation, they had no idea what it would become. The two Stanford students had no business experience; they were children of college professors. They brought a new idea into technology that has changed the search engine market, but more than that they have changed the outlook on running a business.
The culture at Google is lackadaisical, relaxed, and inviting. Employees don’t wear ties. A company bus picks them up from their homes and drives them to work, as if they were going to grade school. They are served catered meals each day, free of charge. The employees are encouraged to create their own ideas and set them forth. And their workspace is no more normal. The Googleplex is a four building campus that holds more than offices; it holds pools, gyms, a barbershop, cafes, lounges, and much more. It is a space that invites creativity and inspiration. The culture and environment inside of Google is one of the keys to their success.
The way of life of a Google employee is something that every computer science major in college dreams of. In order to bring in the brightest and best in the industry, Google has a very aggressive recruiting process that involves tours to the best colleges worldwide in search of the next innovator. Google has taken great strides to become the biggest and the best; however, none of that is possible without employing the best.
Outside of the Googleplex is an array of competitors, in differing industries. Google’s biggest competitor is Yahoo, who holds less than 10% of the market share. The competitors vary in that Google serves many markets; however, in its primary market it is the biggest leader. In order to protect that lead Google strives to continually improve upon their offerings and continue to bring new products and services to the market.
Continuing the advancement of their products and services paired with the constant introduction of new products and services is a daunting task; however, Google must do so in order to maintain their revenue from advertising, which accounts for more than 99% of their revenue. To better protect from that risk on revenue, Google has looked to diversifying those income streams. By doing that they are becoming more flexible and able to adapt to any conditions.
The marketing strategy of Google is non-existent. They have relied on their products and services since inception, allowing those offerings to speak for themselves – and the users to speak to other users about their value. Although that seems ludicrous, it has proven beneficial. They have not spent a dollar to bring their products and services to the public, yet 80% of Americans use them. Google has become a household staple in the United States, an everyday tool, and a verb in the dictionary – “to google.”
Google has grown exponentially over the past decade. Since their inception their stock price has grown over 400%. Their revenue over the past three years has grown 43%, net income has grown 19%, and stockholder equity has grown 29%. The company has continued their success through employing the best and brightest, not only in innovation but in their management as well. Throughout the past decade Google has grown from a garage dot com to an internet mogul that has the entire technology market within reach.
Looking forward into the next three years there are 3 main objectives Google should focus on to maintain and further their place in the market. Internally, the company needs to continue their success. They need to continue their aggressive recruiting efforts to ensure they are the employers of the most intelligent, creative, and efficient in the world. That includes maintaining the culture of the organization, the free-thinking and creativity inviting atmosphere. In doing that they are ensuring that innovation and continual improvement in their product and services offerings are sustained; which is key to maintain their place in the market.
Externally the company needs to diversity their revenue streams. Over 99% of revenue comes from advertising, which poses a risk to the company’s income. In order to solidify their ground and ensure that a partnership or agreement will not significantly hurt their revenue, Google needs to look elsewhere for opportunities. The opportunities present are abundant; internationally Google is not the household staple it is in America. Beyond geography there are product and service areas that Google has yet to tap. In order to continue their growth and solidify their place in the market Google has to invest heavily in foreign markets and continue to focus on research & development of new products and services.
In terms of the company’s well being, Google is doing very well. Their success echoes in the marketplace for Microsoft, Yahoo, MSN, and the rest to hear. Throughout their history they have proven to be the leader in their industry and through the analysis of the company it is apparent that they will continue to do so. To propose bettering an already great company is a daunting task; however, it is one of Google’s Ten Principles that states, “great just isn’t good enough.”
From Start-Up to Success: Introduction
With Google you can find information in 88 different languages, check stock quotes and sports scores, find news headlines, or look up the address and phone number of your local grocery store. You can find pictures, videos, maps, emails, and so much more with Google. There is a lot of information on the internet and Google makes that information accessible. There is also a lot of information not on the internet and Google works to get that information digitized, such as Google Books. Google is a company that began with a desire to improve upon something great, and in turn has turned into something great.
In 1995 Larry Page had recently graduated from Michigan University and was touring Stanford University. Sergey Brin, a doctoral student at Stanford, was assigned to show Page around the school grounds. Once enrolled, Page and Brin became close friends and worked closely on the Stanford Digital Library Project. The Project was highly sought after among Page, Brin, and the other computer science graduate students.
In working towards the Stanford Digital Library Project, Larry Page explored the mathematical properties of the internet and studied to understand its link structure. Page focused on the problem of finding out which web pages link to a given page, considering the quantity and frequency of the backlinks to be valuable information. He nicknamed his project “BackRub” and was soon joined by friend and classmate Sergey Brin.
To convert the backlink data the new website gathered into a measure of importance for a given web page, Brin and Page developed an algorithm called PageRank. Running an analysis on a given website provided a list of backlinks ranked by importance. Page and Brin hypothesized that a search engine using their analysis would produce better results than existing techniques.
Popular search engines of that time, such as Hot Bot, would search for the term the user entered – “New York Yankees,” for example – in all of the pages on the web. If the term “New York Yankees” appeared several times, it was returned in the search results. The higher the frequency the term appeared on the page, the higher the page was ranked in the search results; however, it could just turn out to be an internet store that sold sports memorabilia. Page and Brin created a tool that would return the most relevant web page first. They wanted the user’s search to return the official Yankees website instead of the sports memorabilia internet store.
Their project had received positive feedback and the students were continually linking more sites together through their PageRank algorithm. Their search engine operated on Stanford servers for more than a year but eventually began to take up too much bandwidth to suit the university. In 1997 Page and Brin decided that their search engine needed a new name. They agreed on the name Google, a play on the word “googol,” a mathematical term for the number represented by the numeral 1 followed by 100 zeros. They decide on the name to reflect their goal of organizing an infinite amount of information on the internet.
The domain google.com was registered in September 1997. They started their new website out of a friend’s garage in Menlo Park, California. In August 1998 one of the founders of Sun Microsystems, Andy Bechtolsheim, wrote a check for $100,000 to an entity that did not exist. Page and Brin deposited the check and incorporated in September 1998 as Google Inc. Later that year PC Magazine reports “Google has an uncanny knack for returning extremely relevant results” and recognizes Google as the search engine of choice in the Top 100 Web Sites for 1998.
With Google officially launched and earning attention from internet users, Page and Brin finally had outgrown their garage office and moved into a new office in Palo Alto, California. The new office held the team for only a short time. They moved twice since their first Palo Alto office; their third move was the final move, into what is today known as the Googleplex.
With the hard work of Page and Brin came a group of the most talented, not necessarily experienced, minds in the world of computers. That group of talent grew drastically over time as the company expanded. From 2000 until today there have been countless innovations to come out of the Googleplex; the timeline below will outline what Google has delivered since their move:
In the past two years Google has continued its exponential growth. Through acquisitions of Omnisio and Tatter & Company, Google Video and Blogger sites were dramatically improved. Google has done many things since its inception; however, some of the most creative have attracted a large amount of its users. In 2008 Google launched its “street view” from Google Maps in Europe, and in its launch came live coverage of the 2008 Tour de France. Google also leaked information on its newest product through a comic book; the next day Google Chrome is introduced.
The company that began in a garage has become one of the biggest and brightest companies of our era. Google has transformed the internet, creating a site to “organize the world’s information and make it universally accessible and useful.”
A Look Inside Google: Internal Analysis
Mission Statement: “To organize the world’s information and make it universally accessible and useful”
Google’s mission statement gives the company a future to strive towards, as it is hard to imagine all of the world’s information easily accessible at one place. It does not; however, reflect the way they earn a profit. The mission statement reflects a company that is a resource to anyone, whether doing research or curious as to what Derek Jeter’s batting average is. It does not give a timeline, only the end result. That is advantageous in that it allows Google to use any means necessary to organize information; meaning they are not limited to search but capable of achieving their mission by utilizing other tools, such as email, blogging, and a number of other products and services that Google offers.
The corporate culture at Google is far different from that of the typical Fortune 500 Company. They don’t wear ties, there are swimming pools in their office, leisure is encouraged, and there are no concrete deadlines. This culture is emphasized by the ten principles that Google calls their philosophy:
• Focus on the user and all else will follow.
• It’s best to do one thing really, really well.
• Fast is better than slow.
• Democracy on the web works.
• You don’t need to be at your desk to need an answer.
• You can make money without doing evil.
• There’s always more information out there.
• The need for information crosses all borders.
• You can be serious without a suit.
• Great just isn’t good enough.
Google does not document a Vision Statement on their website, but instead a set of principles. These principles are what set Google apart from their competition. Their employees are a foundation for the success of the company, and Google recognizes that. Larry Page and Sergey Brin have emphasized a “small company feel,” and have worked very hard to accomplish just that.
Google has abundant resources, starting with its well recognized name. Google has a name that’s easy to remember, well known and it reflects the company’s mission, “to organize the world’s information and make it universally accessible and useful.” But Google wouldn’t be the great entity it is without its unique attitude and culture of its employees. Google tries to maintain a small company feel so that everyone is comfortable to share their ideas and opinions with each other and even the founders, Larry Page and Sergey Brin. The employees at Google are given a time management rubric, referred to as the 70-20-10 rule. It states that 70% of employee time is spent on their core business, 20% is spent on adjacent areas of business, and 10% is allocated for creativity and freedom to innovate. The rule encourages employees to create their own idea, the next big Google product or service, all while continuing their core business, Google search.
Page & Brin invented a unique search engine, BackRub, that would become Google. Unlike other search engines at the time, Google’s technique involves not only keywords on a site related to a users search but also, how may web sites link to a particular site. Google’s unique search technique coupled with it’s incredibly high speed allowing it to search billions of terms in moments has increased the trust internet users bestow in Google and why Google has become the number one search engine in the world. That trust is a significant resource of Google, that trust is the loyalty that keeps users returning to their site.
Google has grown beyond just a search engine though. Google includes features applications and services such as Google Maps, Gmail, Blogger, Scholar, Finance, Video, Documents and many more services that help make up some of Google’s sustainable advantages. That list contains one of Google’s newest products, “Social Search,” which launched October 26, 2009. It will allow users to search online friend’s content to find relevant postings on Twitter and similar blog-like sites.
Google relies heavily on its intangible resources. Google only wants employees who enjoy doing what they do which is why 20% of employee time is allocated to whatever Google side project the employee wishes to pursue. This allows a great deal of innovation to occur and to give employees a feeling of freedom and trust. Google’s philosophy has always been “Focus on the user and all else will follow.” Google’s dedication to its customers has increased consumer trust in Google and its reputation as a caring business.
Google’s unique free-thinking mindset gives it the capabilities it has. Its employees, with the ability to make their own decisions, allow them to pursue their own innovations and research creating a win, win situation for Google. The idea behind this is in having happy employees, better research & development, innovation, and overall service will come. With that come happy customers, or advertisers, in turn providing more profit to Google. Above average profits bring happy investors. The Google way is simple and complex at the same time in that it is an easy idea but very few firms can accomplish that goal.
“We don’t have as many managers as we should, but we would rather have too few than too many,” said Larry Page of his organizational structure. The employees at Google are not your typical employees. There are no postings on craigslist for a Google position. The employees are highly recruited, young and talented minds, people who do not apply at Google but instead get applied for. Google travels to campuses worldwide to find fresh, intellectual, aspiring new comers into the world of technology. Those people make up the dynamic group that consists of Google Inc.
A big part of Google’s big idea of starting with happy employees is its Googleplex. Although the Googleplex is only one of the company’s 23 North American, 23 European, 14 Asian, 5 Middle East, and 3 South American offices – it is the corporate headquarters, or playground. It is a 4 building park, consisting of over 500,000 square feet, that has something for everyone. Google rewards their employees with pools, volleyball courts, lounges, cafés, a barber shop, art studios, gyms, and more.
This creates the free-thinking mindset that allows its employees to create new ideas and formulate those ideas. There are ample things to break a Google employee’s mental block, and those breaks are encouraged. Some offices in the Googleplex look more like the waiting room of a pediatric office than a computer engineer’s. This space is the basis for Google’s capabilities – it allows their employees to create the next big idea that makes Google who they are.
Google is an information powerhouse. Although being able to access, analyze, and produce outputs for this information is a resource, being able to do just that is itself a capability. Not just anyone can do what Google does. Google has answers for 67% of all web searches, without running their signature algorithm. Google tracks and records the traffic to over 1.5 million websites. The capabilities that Google uses most are in the employees’ intellect and creativity. The minds that produce the product searches, maps, academic journals, calendar & documents, videos, music, pictures and more are the people that hold the capability to make Google who they are.
When it comes down to it, Google’s team of dedicated employees are probably one of its most valuable assets and why it dedicates so much time into selecting each individual staff member. Its employees are responsible for most of Google’s innovative applications and expansions. Google’s patrons are also a valuable asset. Google is the number one search engine – that means it has more searches done every second than any other search engine which also allows it to better refine its search algorithms more precisely than any of its competitors. Google excels at directing a large quantity of visitors to websites using its AdSense program. Many businesses are dependent upon the traffic AdSense brings to their website to generate income.
Global Market Share: Internet Search
Google has achieved the top market share in the search industry precisely because their product is rare. They are able to provide consumer attention to any type of company looking to advertise. Google uses a simple interface that none of its competitors currently use. There is no advertising on Google’s home page and the only advertising in search results is those that directly relate to the search terms. Its auto complete search terms use algorithms that no other competitor can offer. In the search industry competitors of Google have followed suit with their advertisements; however, Yahoo and MSN’s home pages are littered with banner advertisements and hundreds of words. Consumers actually look at Google’s advertisements because they are relevant to their searches and are not an interruption to their internet search. Page and Brin added a provision to their mission statement recognizing that “advertisements should not be an annoying interruption”.
Costly to imitate
The name Google alone basically equates to the ultimate search engine in people’s minds. In fact, “Google” is so popular it was added to the dictionary as a verb in 2006. The dictionary defines google as: “to use the Google search engine to find information on the internet; to search for information using the Google search engine.” It would be difficult to imitate Google’s complex search methods and advertising techniques. Google started in 1998 and has been continually improving its search technique with every search. It would be near impossible for a company to replicate Google’s method of searching without being able to go back in time.
While Google’s search technique itself is difficult to imitate there are many other substitutes available such as Yahoo, Ask, Microsoft and many others. And, while the number of internet users continues to grow, Google can’t reach citizens that still choose to research and find information the old fashioned way, through journals, encyclopedias, and real life research and surveys. As of the moment, though, Google delivers the speediest and least hassle-some means of internet searching making it one of the best ways to search for and access information. If Google can continue to remain number one it should have little to fear of substitutes.
• Google must continue to recruit the smartest, most creative, and talented young minds.
• The culture of the company cannot change.
• The products & services need to match the demand from the users.
In order to sustain the growth and profitability Google has encountered in the last decade, it needs to continue its focus on the user. Google is viewed as an innovator and a technological leader. The company needs to continue to introduce the most advanced and user friendly products and services as it has in the past. The path to do so requires strenuous recruiting, to continue to employ the smartest, most creative and talented young minds. If Google can continue to recruit the caliber of employees it currently has, their innovation and technology will follow.
The culture of the company cannot change. They have seen ample success in their laid back, creativity enhancing atmosphere – they need to solidify that throughout the next three years. That same atmosphere needs to be the setting for the future products and services that internet users worldwide produce demand for; which, in turn keeps the advertising dollars coming into the company.
The products and services that are created over the next three years should match the demand from the general population. Throughout the creation of new products and services there should still be continual improvement in their current products and services. Both innovation and further improvement should move in parallel. Some areas of focus should be other advertising formats, such as video advertising or even into the offline world through further acquisitions.
In the world of video, Google owns YouTube, one of the biggest free video services around; however, it struggles to be profitable. The content that is streaming through YouTube should be somewhat controlled. Not anyone should be posting their gossip or story of the day; while those videos are interesting, funny, or both – users will not pay for that product. Moving advertising to YouTube could be an answer, showing a video advertisement before each video is played.
Social networking is a booming business. Google got their feet wet with the acquisition of Orkut; however, it has not held its own against the social networking giants Facebook and MySpace. Attracting users is a difficult task and the only way Google will be able to attract users to Orkut is by differentiating it from Facebook and MySpace. In order to differentiate Orkut, the employees at Orkut should follow their focus – on the user. Follow what each Facebook and Myspace user does, how much time they spend, what they do most, and who they talk to most – and create the ultimate social networking site. A blend of LinkedIn, Facebook, and Twitter could be something that users worldwide would have interest in. Install a focus on something that attracts not only students, but professionals and everyday internet users as well.
Another area of opportunity is in Google Docs. Google has a great idea that enables users to access an office suite through the internet. If Chrome is a success, they could offer an Office Suite that competes with Microsoft Office to be included. Tapping into the market that Microsoft dominates is by far the largest challenge proposed; however, if done right it would position Google atop one of its biggest competitors. Google has the resources and capabilities to become the biggest international name in the technology industry; however, proper execution and timing is pertinent to their success.
Google & the Internet Industry: External Analysis
Where does Google make their money? They provide a free search engine, email, news, documents, blogs, video, etc. How do they pay all of those talented employees? To better explain the answer it is more efficient to begin with Google’s objective.
Google focuses on what it is known for – internet search service, the rest falls in line shortly thereafter. On each search query are advertisements, which bring in the revenue. Google has an ample demand for advertising because of a key factor – they provide the perfect market for the advertisement. If you search “New York Yankees,” you will see advertisements for sports memorabilia or tickets. If you search “Life Insurance,” you will see advertisements for different insurance company offerings. Google provides exactly what every marketing executive has trouble with – attracting a target market. Once a company defines its target market Google can put their advertisements in front of that market.
Can other search providers accomplish that? In 2008 Google Inc.’s revenue was $21.8 billion. Yahoo’s revenue was only $7.2 billion. There are millions of searches on the Google website daily. With all of these searches, there are billions of advertising dollars to be had. Google Inc. currently holds almost 85% of the market share, followed by Yahoo at 6%. Obviously, there are competitors to Google, but with a 79 percent lead in market share, it is hard to decide whether Yahoo could be considered a threat at all.
Google search is their most effective way of bringing advertisements to the consumer; however, it is not the only one. Google uses email to trace what users, or consumers, are inquiring in; they use that data to cater to those users through their advertising. Google employs people who do nothing but trace blogs for trends in consumer interest. There are a number of free services provided by Google but they are more than just services the user loves to utilize, they are tools that bring in revenue for the company. This is a feat that no competitor has been able to successfully imitate.
Porter’s Five Forces
Potential New Entrants
Because current search engines have developed and stored years of data about user habits and about searches, the capability for a new company to enter into the competition and gain or hold position would be extremely difficult. For a new entrant to succeed they would need to offer better services, more personalization for the consumer and faster results. When Google was introduced, the market was dominated by search engines like MSN & Yahoo, but since then the market had matured, therein lowering the threat of new entrants. One new threat to Google’s market share could be that of the mobile search engine. More consumers daily are using mobile devices to search the internet. But with better technology currently lacking, Google’s presence in the mobile market, and Google’s mobile operating system, this threat is in the far future, and not a pressing threat.
Supplier power is relatively low due to the fact that their income source has proven reliable. Google has two customers: the user and the advertiser. Google’s revenue comes directly from the advertiser but relies on their users. Sergey Brin stated, “Google actually relies on our users to help with our marketing.” As long as Google remains dominant and continues to attract users, advertisers will continue to follow. Supplier power will remain low as long as the number of Google users sustains, and throughout the past decade Google has continued to better their products and services. That has created a sense of brand loyalty that internet users have become used to – people use Google as if it is the internet, not as though it is a site on the internet.
Because so many people use Google, buyer power is relatively low. It is key to remember that Google has two customers, advertisers and internet users. The advertising depends on the internet users; hence as long as there are internet users utilizing Google’s products and services there will be ample advertisers. The number of internet users that could use Google is worldwide, and the number of advertisers that use Google is continually growing to reach those internet users. Google also spreads itself across the internet market making it almost impossible for users to not know about Google. In 2008 Firefox had 60 million daily users on its web browser, of which 85% is financed by Google, in exchange for having its search engine embedded in the browser. Google Inc., had partnerships with Dell and Apple to have the search engine appear by default on their products. Buyers are hard pressed to move to competitors because of these assertions by Google.
Barriers to Entry
The main barrier to entry that Google imposes is their ability to use their PageRank to deliver the most relevant searches for the consumer. A web site’s reputation is primarily based on the back links that it receives from other websites. Google uses its superior algorithms to use PageRank to deliver better results than other search engines. One of the ten cores to Google’s philosophy is “It’s best to do one thing really, really well.” Google focuses on searching. They put some of the largest research groups on the task of focusing exclusively on solving search problems, and learning how to do that better. Because of their continued focus on searching, they create a barrier to entry. Google has been searching the web for over a decade. The search engine archives everything searched, to improve upon the next search. It is extremely difficult, if not impossible, for a new search engine to return the same results as the continually improved Google search engine.
• Focus on creating products & services catered to users in the BRIC countries.
• Find new sources of revenue and diversify revenue streams.
The United States knows Google very well. We are familiar with their offerings and utilize their free tools on a daily basis. Over the next few years Google needs to put a large focus and investment into the BRIC countries: Brazil, Russia, India, & China. These are markets where Google has already tapped into but has yet to exploit. China is home to the majority of internet users and although they know and even use Google, it is not yet a household name. Becoming a verb in Chinese and Indian culture will be a critical part of Google’s continued success.
In order to move heavily into these countries Google should not simply put their product in foreign territory in their respective language, they should cater the products and services to the needs and wants of the people. In North America Google has continued to bring the users exactly what we were looking for, but what we want in an email service or a search engine might be significantly different than what users in foreign countries want. The focus should be to cater to each cultural group as a whole, and not to alter the current product to meet their needs.
Finding new sources of revenue will also be key to Google’s sustainable success. Currently over 99% of revenue comes from advertising, which is heavily dependent on partnerships and agreements. If anything is to happen to those partnerships and agreements, their revenue is dramatically affected. In order to diversify their earnings, Google needs to provide a new source of income – perhaps in offering mobile internet search, email, and other services. In order to keep Google’s name in tact as the free service provider agreements with the cellular carriers would be involved. In order to use Google applications on their phones Google would need a royalty for each unit sold.
Google is doing well in its internet advertising, exponentially well. There will soon be more internet advertising than anything else, if growth continues as it has. On the same token, Google is very dependent on that revenue from advertising via the internet. To further diversify their operations, entering into traditional advertising markets could help and be remotely simple. Acquiring a company that has produces television, radio, and newspaper advertising would be an advantage that Google has. Beyond diversifying the revenue, it would become very easy for advertisers to place all of their advertising through Google – for their television, magazine, and internet ads. A one-stop shop could provide an edge for Google, enough to keep current customers and bring in new customers.
Google has made a name for itself as a cutting edge company that is constantly on the verge of the next biggest internet sensation. To continue that streak is difficult, but with the power that Google has it is beyond feasible.
Google’s Best and Worst: SWOT Analysis
• Google is the number one search engine worldwide with over 80% of the search market.
• Google is an established brand name with widespread recognition of the name and logo.
• Simple interface creating user friendly products and services
• Highly advanced search technology
• Products and services offered in over 88 languages, worldwide offerings.
• Relatively low operating costs.
• Fair response to all advertisers; ads are listed separately from other search results, marked as “Sponsored Links.”
• Personalization; once registered with Google a search will first provide local results followed by the ranked pages.
• Range of services easily accessed; Google did not complicate the site by creating a portal, instead each service is accessed through a tab linked to its home page.
• Spammers can exploit Google’s search process by creating fake websites with links to the spammer’s desired website so the website will rank higher on a Google search.
• Google’s advertising pricing is relative to the number of clicks the ad receives, making it difficult for companies to determine how much to allocate for that advertisement.
• Google makes about 99% of revenue from advertising and has yet to effectively capitalize on revenue from all of its acquisitions.
• Growing pains; finding new key employees to fill the shoes of the past innovators & leaders.
• Google has a weak position in China, one of the fastest growing internet areas geographically.
• Google can increase switching cost by tracking users’ search histories (permission needed) to remind users through emails for the relevant search updates as per their personal interest.
• Google can improve on their localized searches, by being able to promote local businesses through those local searches (adding a search similar restaurant.com or ziddio.com).
• Google could introduce a free mobile service to users, charging the carriers instead of consumer.
• Google could add privatized databases for companies and individuals alike.
• Google is currently international; however, reaching foreign consumers in the same sense that North American consumers are being reached has yet to be achieved successfully.
• Creating a fixed cost advertising option would bring new companies to advertise; the cost per click program is often difficult for companies to determine how much to allot for the program.
• Google leans heavily on its portal partners like AOL and Mozilla Firefox; if anything were to negatively affect those contracts, Google would lose a considerable share of revenue.
• A new entrant into the market would not be a threat; however, Google could focus too hard on defeating the start-up rather than developing their services to better meet consumer demands.
• Cost per click advertising is difficult and complex for many marketing groups; a flat rate option is needed and competitors are likely to pursue that option.
• Google’s personalized database could lead to privacy issues.
• Google is known as an innovative and continually improving company; if their products and services ever begin to slow their brand name will suffer.
• New laws and regulations, internet controls.
Google as a Brand: Marketing Analysis
Throughout the past decade Google has grown exponentially. Despite being the largest search engine in the world there is still far more to improve upon. Larry Page said in 2007, “The ultimate search engine would basically understand everything in the world, and it would always give you the right thing. And we’re a long, long way from that.” In 2005 Google’s first employee and computer science classmate from Stanford, Craig Silverstein, stated “We need to make search as good as a human answering a search request. We need to be like the computer on Star Trek, and we are not there yet.”
Currently in the United States Google services more than 80% of all internet searches. The more important statistic is that users searching the internet with Google search on average more than 2 searches per visit to Google. These are loyal users who value the Google website; however, most of those loyal users are domestic internet users.
Google has surpassed all other search engines on the internet since its inception. It is a very powerful name and has become a staple in households. Google has become a verb in our vernacular but it has not once marketed itself in the traditional sense. We have seen television advertisements for Microsoft and even for Yahoo, but never for Google. The company has always relied on a good product and word of mouth, which so far has led to success. Having your company name be added into the dictionary is not anything to overlook, it is every marketing executive’s dream to have your company’s name become used in the way that “googling” has.
Google has spent more time and money on determining the wants and needs of the user and catering to those specifications than they have spent thinking of a marketing strategy, and that focus proven beneficial. People want fast, reliable, and accurate – and Google has achieved that effectively. One of the biggest differences between Google and its competitors is their homepage. When you arrive on Yahoo’s homepage, you will see a website with so many options and places to go. Many people see Yahoo as a news source or email application, instead of as a search engine. Google has always remained a simple website.
With nothing more than their always changing logo, a search box, and a row of tabs to navigate to one of the many other services Google offers, they have successfully found what users look for in a search engine. Page and Brin’s idea behind the simplicity stemmed from their stubborn idea that if the user wanted a website with flare then Google was not for them, but if they wanted a powerful and effective search engine they would use Google.
Google claims to spend no money for marketing. While this is true, they have moved their means of advertising to bettering their products to better attract customers. As stated in prior sections, Google has two customers: the internet user and the advertiser. Google has gone through great measures to ensure satisfaction when searching the internet for its users; however, they have also gone through great measures to attract advertisers.
Google’s AdWords is a program that places advertisements on search result pages that relate to the product or service being marketed. If you search “Syracuse Orangemen” using Google you will see advertisements for Syracuse Basketball tickets and autographed Jim Boeheim basketballs. That is not coincidence, and the companies selling Syracuse Basketball tickets and autographed memorabilia benefit greatly from the product placement. Imagine your television only showed commercials for products that catered to you; that is probably likely to happen in our lifetime, and Google has accomplished just that for the internet. Companies of all industries can benefit from what Google has to offer.
Product placement is a fundamental principle of marketing and companies have tried a plethora of techniques to obtain placement of advertisement to their target market. If you own a men’s clothing company, you want your clothing advertisements to be in front of men that wear your brand. Brooks Brothers would want their advertisements to appear in searches for suits, ties, and other men’s fashion, and they do just that. When you search “classic pinpoint oxford,” the first advertisement shown directs the user to the Brooks Brothers website. This provides great value to companies and is a great way to put your product in front of your target audience. Google has become a big player in the world of advertising.
Google has not committed to traditional marketing – you will not see a television commercial or a magazine feature. They have relied on letting their products and services speak for themselves. Google has made a name for itself in advertising, but it is not what users think of when they hear the name. To “google” is still to search, and that is why Google is still today the most successful search engine around. Users do not want to be advertised to, they want to be directed to the information they have queried. Google has done both, subtly, and still remained the same household name.
The search engine has turned into many things: email, blogs, news, stock quotes, images, videos, calendars, etc. The brand has become somewhat of a renaissance man of the internet. They are known worldwide as a leader and innovator. One way they have furthered their becoming of a renaissance man is through Google Scholar. Google has developed relationships with several of the world’s largest libraries. This has allowed Google to digitize books and scholarly articles and create a database of information that otherwise would not be accessible through the internet. No matter where your location worldwide, if you search “Liar’s Poker” in Google Scholar, you can read the award winning Michael Lewis novel from your computer. This has made a name for Google in the world of academia, putting the company in the forefront of something no other company has attempted before.
Google has entered so many markets since its inception, including mapping. Before Google Maps was introduced in 2005, Mapquest was the leader in internet maps & directions. Last year Google Maps surpassed Mapquest in visitors. This is just another area that Google has researched, innovated, and turned into another forte. Now users can not only view a map of the location they wish, but they can see street level pictures as if you were actually at the location searched.
This is all evidence in Google’s theory that their marketing is not in television commercials, magazine features, or internet banner ads. Google has focused on products and services that speak for themselves. They are constantly making the internet a more accessible place. This is the type of marketing that cannot be imitated, it can only be accomplished.
Google has a competitive stance to constantly improve upon their products and services. Beyond innovation they want to provide exactly what the user wants and needs. “Googling” will continue to be searching the internet and people will continue to see Google as the benchmark of internet innovation; however, is “googling” a verb in other languages?
As previously stated, Google accounts for more than 80% of internet searches in the United States; however, the United States makes up only 18% of the world’s internet market. Populations in Asian territories are nearing the 4 trillion mark making it 42% of the world’s population. Asia also produces the larges number of internet users. China alone accounts for 20% of the world’s internet users. Currently, Chinese users prefer the search engine Baidu.
Gaining substantial market share in China could lead to an enourmous amount of opportunity. There are nearly 6 times more marketing dollars spent in China than there are in the United States. In exploiting the Chinese market Google would be also gaining access to other Asian countries.
Another possible area for Google to expand is in mobile searches. With cellular technology, Google has already produced two cellular telephones that utilize many of Google’s products and services. With the mobile search market expected to grow to an $11 billion market in the next two years, Google could become a major competitor in the cellular space as well.
In Google’s current place in the internet market they are the biggest and the best; however, it was founder Larry Page that said “the ultimate search engine would basically understand everything in the world, and it would always give you the right thing.” This is the foundation for what Google is moving forward to become. Google is 11 years old and they have accomplished so much; however, there is a lot still to accomplish and Google is acquiring companies, hiring the brightest minds, and working hard to accomplish just that.
• Continue creating advanced, user friendly products & services to compensate for marketing.
• If at any time innovation & improvement slows, gather market research to put together a proper, traditional marketing plan – one that awes viewers and maintain’s the reputation.
Google is a single-core business and in order to compete with the likes of other technology powerhouses such as Microsoft and Yahoo, they have sought to differentiate to gain competitive advantage – and it has worked. Not only has Google succeeded in differentiating itself from the competition, it has also become a leader in cost and speed. The key component of Google’s success is to continue to improve upon the already great. Their products and services have proven themselves as great; however, to continue to better those products and services is the key factor.
Google has no advertising budget. They depend solely on their products and services to speak for themselves – and then for the users to speak to their friends about the value in them. But continuing that marketing strategy effectively depends on Google’s ability to remain the name it is today. If Google begins to slow innovations and improvements, their name will not be as valuable as it is today. Google must continue to provide above average products and services so that when a new product or services is introduced, it will be recognized and utilized.
To expand upon a non-existent strategy is simple – any of the strategies learned in business school could be used; however, on a first move basis Google must come with a bang. If Google struggles with their product development and research, they will need a marketing campaign. That campaign will be walking a fine line between becoming Microsoft and remaining Google. In order to remain Google, to keep the value that is bestowed in the name, the company must put out a campaign that reaches everyone – from grade school to the retirement facilities, and across the world. A daunting task but should be held back until all other means have been depleted.
The Numbers: Financial Analysis
Google began as an interesting math project, created interest, and received its first initial investment of $100,000 from one of the Sun Microsystems founders. From that initial investment Google has grown at an exponential rate to become what today is one of the most powerful and innovative technological companies of all time. Starting out Page and Brin had no idea where to go for venture capital. They were both sons of college professors, both intelligent and talented, but lacked any business sense as to how to start a company – but they did.
Google is a relatively young company that has been public since August of 2004. At the initial public offering a share of Google stock sold for only $85. By the end of 2007 the stock price had reached almost $750 a share – 782% return on investment in 3 years. That means if you had purchased a round lot, 100 shares, of Google at initial public offering and sold those shares at its peak in November 2007 you would have made $66,500 in three years. That puts a child through 4 years of college at most state universities – and many kids went to college because of their parents’ investment in Google. When the recession began taking its toll on companies worldwide GOOG fell to the $300 range, and today is in the high $500s. Even if you rode the stock another 2 years until today, at $500, you would have made $41,500. That might not be a college education, but that is still a 488% return on investment in 5 years.
The graph pictured is the stock price of Google, Yahoo, and the S&P 500; the prices are plotted over a five year horizon. Note that the S&P line is considerably higher; this is not because the S&P produced a higher return over the five year period, but because the S&P trades at a price around 1000. In analyzing what the graph depicts of the performance of Google and Yahoo; however, it is easy to say that Google has outperformed Yahoo.
The stock performance of a company is indeed important, but it is not necessarily a direct indicator of how financially sound a company is.
There is a discrepancy between what the value of a company is – the book value versus the market value. The book value is simply the shareholder’s equity, because of the accounting equation referring to the assets less claims against assets. The book value of Google in 2008 was $28,238 million. The market value of Google better reflects the true worth of the company, which in 2008 was $1.023 billion. The drastic difference between the values is simply because financial statements are transaction based, or after-the-fact, which does not account for the time value of money; where as investors buy the stock for future expectations, not the underlying value to investors. This is an important distinction in valuing Google because investors in Google stock rely heavily on intangible assets, which are very difficult to assign an intrinsic value to.
In looking at the performance of Google in comparison to Yahoo, there are quite a few distinctions. In analyzing the returns of the stocks over the five year period the average return on Google is 11% compared to Yahoo’s -2% and the S&P’s 0.5%. That alone should tell you which company to invest in; however, you can further see the value in the difference in risk by finding the standard deviation of the stocks. The standard deviation of Google over the five year period is 0.0238 compared to Yahoo’s 0.0307 and the S&P’s 0.0150. This shows how the S&P is the least risky investment, as it is diversified across a number of different equities. In looking at Yahoo’s higher risk and lower return it is easy to conlcude that an investor would not take on more risk for lower returns.
A company’s stock price is not a firm indicator of it’s financial stability, although so far Google has outperformed its biggest competitor. In analyzing the financial statements we will see more accurately how Google handles their money. The income statement shows annual data from 2006, 2007, and 2008. The average growth in key figures from the income statement over the three year period is:
• Revenue: 43%
• Gross Profit: 44%
• Operating Expenses: 53%
• Net Income: 19%
Most companies may start with growth of this kind but slow to what is considered their normal growth rate. Perhaps Google is still in its younger years, but after 11 years of operation the growth seems to sustain. Revenue and gross profit are very close, but operating expenses is significantly higher. The biggest growth in the three year period was between 2006 and 2007, where research & development and selling, general, & administrative expenses nearly doubled. Although the operating expenses rose so drastically, the net income growth for the three year period is still impressive at 19%.
In looking at the Google’s balance sheet, which is considered to give a financial snap shot of the company’s financial well-being, again it the annual data from 2006, 2007, and 2008 is displayed. The average growth in key figures over the three year period is:
• Current Assets: 25%
• Total Assets: 32%
• Current Liabilities: 35%
• Total Liabilities: 59%
• Stockholder Equity: 29%
• Net Tangible Assets: 22%
The biggest number to jump out is the growth in total liabilities. The majority of that growth took place between 2006 and 2007; as the growth rate from 2006-2007 is 84% but in 2007-2008 is only 33%. In looking further into the reason for the jump in total liabilities the balance sheet shows an increase from $68 million to $580 million in other liabilities. This could be a variety of things that could cause such an increase; however, the total stockholder equity still grew by 29%.
The statement of cash flows depicts some pertinent information about Google’s finances, and on first look there seems to be a lot of negative numbers. Over the three year period the average growth in key figures is:
• Cash Flows from Operating Activities: 49%
• Cash Flows from Investing Activities: -1%
• Cash Flows from Financing Activities: -82%
• Total Change in Cash Flows: -430%
From the looks of these growth rates, Google is bringing in a significant amount of money from operating activities, which derives from the company’s products and services and lead ultimately to advertising. Google did not invest more than heavily nor earn more than expected in terms of the grown from investing activities. Lastly, the drastic negative percentage in financing activities stems from the acquisitions throughout the three year period. The negative figure should not be looked at as negative, rather than as positive – as long as the capital is available to adequately fund the acquisition.
Looking at the ratio analysis of Google, there are some key indicators of the stability of the company. The current ratio is 8.76 – meaning that for every dollar Google owes, it has $8.76 to pay that dollar off. That is a very good figure because it is high enough to be of value; however, it is not too high to indicate excess cash on hand. The quick ratio for Google cannot be computed, as it would be the same number as the current ratio. This is because Google has no inventories.
In terms of profitability, Google has a net profit margin of 0.1939. This is a relatively strong number for a company with such low overhead; this figure states that 19% of revenue is net profit. This indicates that the company has a strong pricing policy and is capable of controlling their costs effectively. The return on assets for Google is 13%, which means 13 cents of each dollar spent on assets is converted into profit. The return on equity is a bit higher at 15%, which is a good figure for a company with such demand for common stock. A high return on equity indicates that the company is doing well at effectively utilizing the capital deriving from stockholder equity.
In analyzing the activity ratios of Google, the asset turnover is 69%, which is a suitable number. This means that Google is effectively turning assets into revenue. The net working capital turnover for Google is 1.21; again providing evidence that Google is capable and efficient at turning capital into revenue.
Lastly, to determine the leverage Google has, the debt to asset ratio is 2.8%. The debt to asset ratio measures the company’s solvency; with a low figure such as 2.8% it is reasonable to say that there is a relatively low risk associated with the firm’s operation. Google continues to have a high borrowing capacity and remains a financially flexible company, demonstrated through their ability to purchase so many other companies. The debt to equity ratio is 3.15%. This is a considerably low number, due to the percent of debt issued by Google being so small.
In what has been reviewed so far it is fair to say that Google is a financially sound company that has excelled in areas and fallen short in few. The company has proven itself successful in many areas of its business, and it shows the Larry Page and Sergey Brin hired the right people to run the financial operations of the company.
• Focus on financing activities, as further acquisitions will lead to diversified revenue streams.
• Issuing debt could raise capital, lower the cost of capital, & be very feasible to pay back.
• Watch operating expenses over time to ensure the growth rate in operating expenses does not exceed that of revenue.
To take a snapshot picture of where Google is today and to use the growth at which is has grown over the past three years, the projections are based on the data found in the three year period. That data was averaged and the growth rate was used to determine where the key figures of the company’s financial statements would be. Some of the key projections are:
Period Ending 31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12
Total Revenue 31,366,034.14 45,138,943.40 64,959,573.86 93,483,496.02
Gross Profit 18,993,626.37 27,383,986.47 39,480,755.29 56,921,224.40
Total Operating Expenses 10,018,914.24 15,343,548.11 23,498,002.19 35,986,207.54
Net Income 5,011,956.77 5,942,880.19 7,046,713.80 8,355,574.03
Total Assets 41,700,334.16 54,738,766.46 71,853,921.89 94,320,468.38
Total Liabilities 5,609,674.63 8,917,826.26 14,176,869.50 22,537,289.14
Total Stockholder Equity 36,373,560.85 46,851,602.21 60,348,026.92 77,732,333.18
Total CF from Operating Activities 11,672,171.26 17,349,046.58 25,786,926.06 38,328,651.23
Total CF from Investing Activities (5,262,239.76) (5,205,672.22) (5,149,712.76) (5,094,354.85)
Total CF from Financing Activities 15,608.61 2,780.93 495.47 88.28
Changes in Cash & Cash Equivalents (8,516,727.57) 28,167,931.32 (93,161,645.59) 308,119,616.93
From those projections it is apparent that revenue will be growing at a constant rate, by year end 2012 Google will be bringing in triple the revenue that is is today. Total operating expenses will be increasing at a profitable rate, and net income is strong. Net income seems to level off a bit between 2009 and 2010 but makes a bigger increase between 2011 and 2012.
Stockholder equity is projected to increase at a rate desired by managers. By 2012 total stockholder equity is expected to double in the four year term. Liabilities should increase the most between 2010-2011; however, that is dependent on Google and the debt they decide to issue or any capital they may borrow. The liabilities number is something that could easily not reach estimates through the simple growth rate method used in these projections.
Cash flow from operating activities should increase steadily, these numbers are strong and if Google can accomplish the estimates they are posed to continue their success. The cash flow from financing activities will continue to be negative as Google has recently began to invest heavily. This is not necessarily a bad sign; however, it is a sign that Google is preparing for the future and expect good things themselves. The financing activities are estimated to decrease as Google decides to slow down their acquisition process. This could be a bad sign for Google as they have proven their strength in the past through their continual additions to the company. Competitors could see this is a weak point and attempt to acquire the companies that Google would typically look to buy.
Throughout the projections Google seems to be on the right track to success. Google has had a strong financial background and has done well in terms of financial stability. They have excess cash available to fund any major research & development projects that need attention, as well as cash on hand to acquire new and useful companies, should it decide to pursue them. Google has a strong stock price and has provided plenty of support to its investors over the past years and appears to continue on that track. Through their continued success in operations and management will follow the success in their financial matters.
Where We “Googled” It: Bibliography
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