Case Study: Google 2012

Teresa J. Rothaar

Wilmington University

Primary Issue

Analysis of Gamble’s case study reveals that the primary issue facing Google in 2012 was the company straying from its core principles, specifically, No. 1 (“Focus on the user and all else will follow”), No. 2 (“It’s best to do one thing really, really well”) and No. 6 (“You can make money without doing evil”).

Analysis of Case Data

Gamble’s study provides an in-depth biography of Google, from its humble beginnings in a Stanford computer science lab to the Internet behemoth the company is today. No longer solely a search engine, Google now boasts a full suite of web services and tools, from a cloud email service to a web browser to a social media network. Google’s founders built the company around 10 core principles, arguably the most famous of which is No. 6, “You can make money without doing evil.”

Since its IPO in 2004, Google has been a stock market darling, consistently performing above the S&P 500 Index, even during the financial crash in 2008. Overall, the company’s financials are solid, with consistent growth in revenues, net income, assets, and stockholders’ equity. However, some analysts feel that Google has grown too rapidly, and that it will be difficult for the company to maintain its stratospheric stock price and revenues growth while abiding by principle No. 6. It follows logically that straying from this principle will result in Google also straying from principle No. 1: focusing on the user experience instead of the company’s bottom line.

As mentioned above, Google is branching off into areas far from its core competency of Internet search. While this violates principle No. 2, as the Internet grew and changed, it was necessary for Google to the same. However, not all of Google’s new products have been successful. The case study mentions Google Checkout, which was since discontinued due to its inability to compete with eBay-owned online payment titan PayPal. The Google+ social network, which never managed to compete with Facebook, will reportedly be dismantled soon (Eadicicco, 2014).

While Google’s overall financials are sound, there are some areas of concern. The company’s operating profit margin and net profit margin both dropped by several percentage points between 2010 and 2011, and gross margin increased by less than one percentage point. This indicates that Google’s operating expenses are growing more quickly than its revenues. While the situation is not yet critical, Google needs to get its operating costs under control before they become a big problem.

The fact that most of Google’s revenues come from advertising is also of deep concern in an age where consumers are increasingly tuning out web advertisements at an even higher rate than they are television ads (Kenney, 2014).

Analysis & Alternatives

In the beginning, Google employed a strategy of focusing on a narrow market niche—web search—and providing a search engine that was superior to competitors’ search products. As

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the company grew and the Internet matured, Google began branching out from its original niche, creating a suite of products that complemented its search engine, and competing based on a combination of differentiating features (specifically, innovation and quality) and developing expertise and strengths that rivals could not easily match.

A SWOT analysis was employed to come up with strategy alternatives for Google. This method was selected because of its conciseness, efficiency, and accuracy. The analysis showed that Google’s strengths are its culture of innovation, its ability to produce quality products that customers want, and its strong financials and industry dominance. The company’s weaknesses are lack of income diversification, too many unprofitable products, lack of operating expense control, and the company straying too far from its core principles. Google’s threats stem from competitors in areas outside its core competency, and the company’s legal problems and fines, and resultant public relations issues. Google’s opportunities are in the areas of mobile technology, semantic search, its Google TV product, cloud computing, and manufacturing of hardware.

With the SWOT data in mind, three possible strategies for Google are:

1. Take a focused narrow niche approach centered around semantic search. Eliminate or significantly scale back on everything that does not involve web or mobile search, and focus on developing a faster, more efficient semantic search algorithm. If any company has the resources to make semantic search practical on a large scale, it is Google. However, such a narrow approach may not be profitable on the modern Internet, and because semantic search is so complicated, it may consume a lot of resources without producing results.

2. Take a slightly broader niche approach and focus the company’s resources on improving web search (though not necessarily through semantic search technology), improving and monetizing mobile search, and pushing forward with Google TV. Jettison or scale back non-search-related initiatives. This has the benefit of holding true to Google’s core principle regarding doing one thing—in this case, search—and doing it really well. However, the drawback is that Google would miss opportunities that exist in developing its own hardware and cloud computing services.

3. Continue with the company’s current strategy of broad-based differentiation and competing based on its wealth of resources and expertise, but eliminate unprofitable and underperforming products, in particular Google+. Focus on desktop, mobile, and television search, cloud computing, and hardware. This strategy strays from Google’s principle of doing one thing and doing it really well, but branching out into new areas is necessary to compete on the modern web, and Google needs to diversify its income streams.

Conclusion & Implementation Plan

The SWOT analysis shows that the third option is the best one. Google is known for its culture of innovation and its ability to produce quality products that users want, and so long as it gets its operating expenses under control, it has the money to spend on further innovations.

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While semantic search is a good idea in theory, it is not yet practical to implement on a large scale. Google would be best served putting semantic search on the back burner and focusing on its other opportunities, especially hardware and Google TV. Google made a name for itself on the early web by providing the fastest, most accurate search engine of its time. Television search is in its infancy right now, and Google has an opportunity to capture this market at the beginning and dominate the industry. Google can also capitalize on the unhappiness consumers have toward Apple and Microsoft hardware products—Apple regarding price, Microsoft regarding quality—to produce mobile phones, laptops, and other hardware that beats Apple on price and Microsoft on quality. Google has an opportunity to diversify its income so that it is not as dependent on advertising.

This is not to say that Google should abandon its second core principle completely. While the company is no longer focusing on doing just one thing really well, it can and should focus on doing everything it does decide to do really well: this must be the first step in the implementation process. If Google cannot do a particular thing well, it should not do it. Google+ has never managed to compete with Facebook, and should be jettisoned, or at least rolled into another, more successful product, such as YouTube. All other unprofitable products should also be eliminated. This will get operating expenses under control and allow Google to focus on building the best quality products for its users, instead of on trying to keep its revenues and stock price high.

Finally, Google must recommit itself to its sixth principle and be not just the revenues and stock leader, but the ethical leader in the Internet industry, the example for other companies to follow. Not only must Google commit to doing everything it does well; it must commit to doing everything it does ethically. The company cannot afford any more legal problems or the bad public relations stemming from them.

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References

Eadicicco, L. (2014, April 25). Google Is Reportedly Set To Carve Up Its Failed Social Network Google+. Business Insider. Retrieved from http://www.businessinsider.com/google-changes-2014-4

Kenney, T. (2014, February 11). Goo Study: Most of Us Ignore Online Ads. Yahoo! Finance. Retrieved from http://finance.yahoo.com/news/goo-study-most-us-ignore-130300774.html

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Appendix

Figure 1. This figure illustrates a SWOT analysis for Google in 2012.

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Figure 2. Google’s operating profit margin, 2005-2011, illustrating downward trend.

Figure 3. Google’s gross margin, 2005-2011, showing stagnation between 2010-2011 after two years of considerable growth.

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Figure 4. Plots the growth of Google’s operating expenses versus revenues, 2005-2011, illustrating that operating expenses are growing even more quickly than revenues.

Figure 5. Google’s net profit margin, 2005-2011, illustrating downward trend in 2011 after two years of growth.

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