Case: Googles strategy in 2010

s Strategy in 2010Group 5

Abu Shafin Mohammad Mahdee Jameel (45D 41)Syeda Tasnia Hasan (50D 11)Mohammad Zeaul Haq (50D 18)Chandan Ghosh (50D 27)Md. Rafiqul Islam (50D 40)Md. Saroar Hossain (50D 45)

Presented to :Sheikh Morshed JahanAssociate ProfessorCourse: W650 Business Strategy

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Google is the leading search firm in the internet service industry. It has many prospects for growth within the industry and beyond-

More and more people are dependent on the internet as the source of information. As anyone using the internet is Googles target market, it has tremendous potential to grow as a reliable search engine.

The loyal and satisfied customers also offer Google with the chance for future expansion on a global scale.

Growth opportunities in industry2

Growth opportunities in industry (Contd.) - In 2009, 50% of the traffic and revenues were made from outside the US and the percentage grew as it entered the emerging markets.

Businesses are using it as the platform for advertising. The company dominates the market for search based ads.

- Googles search results made advertising revenues of almost $22.9 billion in 2009.

The increasing smartphone market is also adding to the growth prospect of Google.

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The Android operating system launched by the company has incorporated features in mobile phones that compete against Apples iPhone.

- Googles Android software market share increased from 0 in 2008 to 13% in May,2010.

Cloud computing, the common software platform in the internet is also a growing market. Moving applications such as word processing, presentations and spreadsheets to cloud presents various benefits to corporate users.

Growth opportunities in industry (Contd.)4

Googles Chrome operating system was launched specially for cloud computing applications. - the cloud computing market was estimated to grow to a $95 billion market by 2013.

Google also offers various other applications besides its search functions. It aims to expand its market by launching Google TV that would allow users to search live network and cable programming.

Growth opportunities in industry (Contd.)5

Competitive Forces6

Competitive rivalry within the industry: moderate-high

Google has the highest market share in the internet search market at 63.7% as of May, 2010 while Yahoo! and Microsoft have 18.3% and 12.1% respectively.

However, Googles Android faces intense competition from Apples iOS.

Competitive Forces (Contd.)7

Bargaining power of suppliers: low-moderate

Given, Google remains the dominant search engine in the industry.

Advertisers and receivers of Google products are both clients, hence, there is a high supplier-seller collaboration.

Competitive Forces (Contd.)8

Bargaining power of the customers: moderate-high

Many products and services are free, if they are not used then it would affect the bottom line of other products.

Internet search industry needs to appease the users or else it will not be successful.

No single user has a controlling interest as most revenue is generated by specific partner sites. Competitive Forces (Contd.)9

Threat of new entrants: low-moderate

Barrier to new entry is high as current competitors are established.

New entrants need large capital and lot of technical know-how to build a network to compete and do better than Google and other companies.

Threat can be there in segmented markets, if any company focuses on a single product/service for a niche.Competitive Forces (Contd.)10

Threat of substitutes: high in case of products and development low in case of internet itself

Internet cannot be replaced as the source of information.

Tech-savvy users are always looking for more sophisticated product and service offerings

Users can switch to other search engines if not satisfied with the speed and accuracy of results. Competitive Forces (Contd.)11

Internet Advertising Value ChainCore BusinessForward IntegrationBackward Integration12

Internet Advertising Value ChainCore BusinessNexus

Chromebook

Android

Chrome

Google Fiber

Google.com

Google AdmobGoogle Analytics

Forward IntegrationBackward Integration

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Mobile operating systemsHigh predicted growth rateBuyer demography shifting from tech savvy to mass peopleExit of Palm WebOSEntry of Windows Phone 7

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Factors behind industry changeFactors behind industry change Contd.Google SearchIncreased regulation and censorshipMini search appliances for small businessAdWords and AdSenseMore and more people coming onlineGoogle had huge tech lead in developing marketsAcquisitions and New ProductsDoubleclick strengthening ad offeringsYouTube Premier video siteGoogle Checkout e-CommerceGoogle Apps

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RivalsYahoo!Yahoo! used google search technology in googles early yearsOwns some google stock from a lawsuitTried to get ads from google contract broken mutuallyNow shifting more towards MicrosoftMicrosoftTrying to move into online services from traditional strengths in officeSees google docs as office competitorPositions Live search as google rivalSearch agreement with yahooBanner AdsSkyDrive Online storage16

Rival PositionsKey RivalsYahoo!Microsoft

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Rivals likely movesSearch EngineYahoo! : Collaboration with MicrosoftMicrosoft: Semantic Feature, entering ChinaPercent of SharesSearch EntityJuly 2006June 2009May 2010Google Sites43.7 %65.0 %63.7 %Yahoo Sites28.8 %19.6 %18.3 %Microsoft Sites12.8 %8.4 %12.1 %Ask.com5.4 %3.9 %3.6 %AOL5.9 %3.1 %2.3 %Others3.4 %n.m.n.m.Total1oo %1oo %1oo %Source: Crafting and Executing Strategy (Thompson), Pg- C-20118

Rivals likely moves (Contd.)Internet AdvertisingYahoo!Facebook: Capitalize on its huge user base strength

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Rivals likely moves (Contd.)Cloud ComputingOpportunity for companies who manufacture OS/software bundles (Apple, Microsoft)Mobile OSiOS, Blackberry: Price cut, Strategic partnership with carriers (mainly in China)20

Key factors for competitive successSearch engineFast , accurate, unbiased resultEasily adaptable with other websites (search appliances)Enriched search indexAccessible via mobile devicesSemantic search featureInternet AdvertisingSufficient site trafficRobust analyticsAdvertisement relevancyExtension of search result to mobile devices Keeping ad publishers interest in mind

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Key factors for competitive success (Contd.)Smart TVMultiple features (cable programs, stream videos, recorded programs)Strategic partnershipsCloud ComputingAbility to store and process large dataEnsure safety and speedAffordable pricing to stimulate customer switchingOSUser friendlyUseful core applications bundleInterests from app developers22

Prospects for Attractive ProfitsSearch Engine: HighInternet Advertising: HighCloud computing: HighSmart TV: Moderate-LowOS: High-Medium

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One of the Googles main strategy is to Dominate Internet Advertising.

Organize the worlds information and make it universally accessible and useful is Googles mission. But as it is a business, its prime target is making profit out of it. Currently, the main source (97 %) is internet advertising.24

How Well is Googles present strategy working?Two best indicators of how a companys strategy is working are:1. Its Financial health: The stronger a companys financial performance, the more likely it has a well-designed, and well-executed strategy.2. Its industry position: If a company is an above-average industry performer we can assume that its strategy is performing well.25

Googles Financial HealthTo know Googles Financial Health, we evaluate some key financial Ratios:

200920082007Operating Profit Margin35.1%30.4%30.6%Net Profit Margin27.4%19.4%25.3%Return on Asset 16.1%13.3%16.6%Return on Equity25.1%15%18.5%Current Ratio10.68.88.526

Financial health of a key Rival Yahoo!200920082007Operating Profit Margin6%0.2%10%Net Profit Margin9.3%5.9%9.5%Return on Asset 4%3.1%5.4%Return on Equity4.8%3.8%6.9%27

Googles Revenues20092008Advertising Revenues

22,888,80421,128,514Licensing and other Revenues761,759667,036Total Revenues$ 23,650,563$21,795,55028

Googles ResourcesTangible Resources: Physical Resources: In 2009 its Property and Equipment was $4,774,938Financial Resources: Total current asset $29,166,958 (including cash and cash equivalents, marketable security, AR etc.)Technological Asset: In terms of Technological asset it is far ahead than its competitors.29

ResourcesIntangible Assets:Human Resource and Intellectual capital: Google has a group of skilled, specialized and experience workforce who are one step ahead of their time. They are innovative and creative enough to foresee the future. Brand and Company Image: Google has a very good reputation as a firm. It has huge brand value.Company culture and Incentive: Google is a nice place to work. It has good culture to nourish the talents. It is the home of talents from across the world.30

Capabilities Financially sound enoughGlobal presence; a household nameContinuous improvement and innovationConstant innovation of search algorithms Open transparent organization cultureCorporate brand reputation or trust

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Four test of Resources competitive powerIs the resource (or capability) competitively valuable?Is the resource rare?Is the resource hard to copy?Are there good substitutes available for the resource?

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Is Company Able to Seize Market Opportunities And Nullify Threats?Yes, Google is able to seize market opportunities and nullify threats.

In 2010, 234 million Americans aged 13 and older owned and used mobile phones. More than 30% of mobile phone users accessed the internet from mobile devices, and a rapidly growing number of mobile phone users were exchanging basic mobile phones for Smartphones.

Googles Android had achieved remarkable success, despite its late entry, with its market share increasing from Zero in 2008 to 13% in May, 2010.33

Is Company Able to Seize Market Opportunities And Nullify Threats? (Continued) Google had also entered into alliances with Intel, Sony, DISH Network, Logitech and other firms to develop the technology and products required to launch Google TV.

Most ambitious strategic initiatives in 2010 was its desire to change the market for commonly used business productivity applications.34

Is Company Able to Seize Market Opportunities And Nullify Threats? (Continued)

Web browsers launched by Microsoft and Mozilla had thrown challenges for Google preventing it from collecting user specific information needed for Ad targeting.

Googles Chrome browser provided Google a defense. Google entered into agreements with Acer, HP, Lenovo to begin producing Netbooks that would use Chrome OS and Chrome browser.35

Is The Price And Cost of The Company Is Competitive With Those of Key Rivals?Yes, the prices and costs are competitive with those of key rivals.

Google always believe in minimization of costs. Google is practicing this policy from its inception. For example, in 1998 Google was run on a shoestring budget, even with a cash reserve of $1 million.36

Is The Price And Cost of Google Is Competitive With Those of Key Rivals? (Continued) The licensing fee for the Microsoft Office and Outlook package was typically $350 per user per year. Google Apps could be licensed by corporate customers at $50 per user per year.

Googles Site Search allowed enterprises ranging from small business to public companies to license Googles search appliance for use on their websites for as little as $100 per year.37

Is The Price And Cost of Google Is Competitive With Those of Key Rivals? (Continued) More than 1 million Google Network members did not pay a fee to participate in AdSense program but received about 60% of advertising dollar.

Google allowed users to pay a CPC rate lower than their bid price if their bid was conciderably more than the next highest bid.38

Competitive PositionPercentage of Internet Searches July 2006 June 2009 May 2010Google Sites 43.7% 65.0% 63.7%Yahoo Sites 28.8% 19.6% 18.3%Microsoft Sites 12.8% 8.4% 12.1%Ask.com 5.4% 3.9% 3.6%39

Into the Market for SmartphonesRemarkable success Googles Android Software

0% Market Share in 2008 to 13.2% in May 2010

10000 free and paid apps for Android Software

60% Mobile Developer were working for new apps for Android40

Competitive PositionSustainability of Competitive Advantage Strong Relationship between Internet Users, Advertisers and WebsitesDominance in Internet AdvertisingAcquisition & InnovationMobile Search & Smartphone PlatformsDominant Provider of Cloud Computing SolutionsStrong Alliances

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Strategic Issues & ProblemsShould give priority to Semantic Search CapabilitiesPressure to achieve the revenue & growth and maintain lofty stock price may lead Google Inc. to make decisions that pushed the bounds of its corporate philosophySpecially they should be concerned about the saying that the company had strayed from its 10 Principles-specially, Principle-6,You can make money without doing EVIL42

Strategic Issues & ProblemsCriticism about the Companys complicity in Chinas censorship of Internet content

Complain of violation of Privacy Rights Google Maps street view

Image Crisis from various country's investigation into Googles data collection activities in May 201043

Strategic Issues & ProblemsSo, Unlike any other Business Organizations, The above Issues are of fundamental importance for Google as Google Inc. is not only an organization but also a phenomenon, a symbol of Unity World Wide

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The worry listRapid growth of FacebookDifficulty in expanding in ChinaTablet market is expanding, but android is yet to gain a strong hold thereAndroid market share is almost negligible in PC/laptop market45

Questions ?46