case study: · web viewcase analysis presented to the department of management lesson 8 case #2:...

Achieving and Maintaining Corporate Leadership

Case analysis

Presented to the Department of Management

Lesson 8 Case #2: Google (As of 2005)

By Radionell

GRBA 853 Strategic Management & Business Policy

November 21, 2007

Case Analysis: Case #2Radionell

Google

Background

Vision/Mission The vision of Google is that “A perfect search engine will process and

understand all the information in the world” as quoted by Sergey Brin. Also, as the mission is

stated on the website, "Google's mission is to organize the world's information and make it

universally accessible and useful.” Because Larry and Sergey, the co-founder of Google was sick

of major portal site’s lack of capability for providing relevant information, they decided to make

a powerful search engine. The motive of the co-founders is embedded to Google’s mission:

organizing and providing all information available in the world. The mission can be reiterated by

‘commitment to advanced Internet search technology’ and ‘providing easy and time-saving way

of obtaining relevant information.’ The vision and mission reveals the important factor that

Google wants to improve the quality of living by making communication in Internet easy and

efficient. Therefore, the company aspires to be at the leading edge in terms of the satisfaction of

all Internet users, shareholders, employees, customers, and communities. In addition, Google

announces the ten components of philosophy as follows:

1. Focus on the user and all else will follow.

2. It’s best to do one thing really, really well.

3. Fast is better than slow.

4. Democracy on the web works.

5. You don’t need to be at your desk to need an answer.

6. You can make money without doing evil.

7. There’s always more information out there.

8. The need for information crosses all borders.

9. You can be serious without a suit.

10. Great just isn’t good enough.

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Goals/Objectives Google’s goals and objectives are well aligned with its vision and mission. To

organize and provide more information available in the world, the company has set a goal of

making Google accessible to people in more languages and in more countries. Currently, Google

provide its service in 88 different languages, and the company plans to increase this number.

Also, the company has a goal of establishing more effective and efficient way of advertising. In

other words, it wants to create a single complete advertising system which is easy to use for

everyone.

Strategies

Management developed a strategy for Google focus on improving Internet search

technology, diversifying into new Internet related services to achieve more balanced business

model, meeting increasing demands of the international markets, and improving general

administrative capabilities. To maintain the largest market share in Internet search segment,

Google needs to continuously improve Internet search efficiency. As major competitors are

feverishly trying to close in Google’s Internet search supremacy, only advanced technology will

guarantee to remain the current popularity.

In a nutshell, Google’s current strategies focus on ways to develop an effective

differentiating enterprise-wide strategy, increase commitment to Internet search

technology, appropriate and well-timed investment, operational excellence, and revenue

enhancement.

Based on these strategies, Google will concentrate on new opportunity of growing

strengths and capability to excel competition.

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Situation Analysis

Internal: Resources, Competencies, and Advantages

Google is one of the fastest growing companies in any industry. For the fiscal year of 2004,

Google had a profit margin of 12.52 percent, ROA of 21.05%, ROE of 25.97%, and a revenue

growth of 117.56%.

Resources: Google has several resources to deliver unique search experience and relevant,

cost-effective online advertising. Among those, very creative, innovative, and technologically

proficient workforces are the company’s major resource. In addition, a well-established database

is also one of great resources to efficiently provide service.

Competencies: Google has a variety of competencies that set them apart. At first, Google

makes the Internet search easy, speedy, and accurate for users. In other words, Google’s core

competency is the fact that it has established unique and superior Internet search technology. A

buzzword ‘Googling’ represents the phenomenal success of the technology. As mentioned

above, the company’s innovative and technologically proficient workforce has made this

technology keep ahead of competition, and this continuous innovation is another distinctive

competency of Google. Secondly, the unique business model of “targeted online advertising” and

“cost-per-click pricing” which has been developed by Google is another distinctive competency

of the company. Although competitors have adopted this model, Google is far ahead of

competition with regards to technology and brand recognition. Because the model generates

great value, such as time-saving and easy-to-use, to customers, it is more likely to increase sales

of clients; hence Google’s. Another distinctive competency is a Google’s philosophy about pop-

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up ads. Simply, Google does not use any multimedia banner ads and colorful ads on its home

page. The only time users see these ads is when users’ search enquiry is relevant to the ads.

Although relevant multimedia banner ads beside search results are keys to success in this

segment, not pursuing these ‘pop-up’ ads sets Google apart from competitors at this moment

because it often annoys users. These factors all make Google very competitive in this industry.

Advantages: Google’s advantages come from its unique and well-timed positioning in

Internet search industry. Although there were several powerful portal sites when Google first

came in, no competitors thought that ‘searching’ is a promising or revenue generating business

model. Therefore, Google was first in the market in terms of provider of ‘searching’ as a product

or service. Another advantage of the company is the fact that Google is a relatively small and

agile company compared to major competitors. The company has only small number of brick

and mortar facility. It allows Google to move and react more quickly than competitors in this

high velocity environment.

Strengths

There are several strengths that Google can use to gain market share and increase

profitability, but there are also some weaknesses that it must improve in order to remain

competitive. Google’s strengths can be summarized as follows:

Superior and unique Internet search technology

Strong brand image

Well-established corporate culture which makes the creative atmosphere for successful

innovation of products or services

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Financial resources available for R&D

Leaders in search related services

Having a market-oriented and technologically professional workforce

Agile and flexible to the change of relevant environments

Unique business models, such as ‘AdWords’ and ‘AdSense’ which turns out to be very

profitable models

Having a huge database including customer preferences

Having a capability of providing competitive services in images and catalog compared to

major competitors

Weaknesses

Although Google is a leader in Internet search industry, it has several weaknesses and the

weaknesses are must be eliminated or reduced.

The weaknesses include:

Too reliant on Internet search service

Lack of loyalty or far behind competitors in terms of the number of members due to

Google’s focus on non-membership related service

Virtually no switching costs to users in this industry

Not focusing on potentially promising ancillary services, such as business solutions

Not having auction platform

Arrogance in dealing with prospective advertisers in terms of keep switching teams

already assigned to cases, in other words poor administrative company structure

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Lack of experience to be a independent portal compared to competitors

Critical Success Factors

There are seven critical success factors for a company in computer service industry. Those are:

1. The successful recruitment of a quality workforce

2. The ability to offer multiple products or services

3. Having a strong brand image and loyalty

4. The ability to offer innovative products or services

5. Having a good relationship with clients, advertisers, and computer manufacturers

6. The ability to manage confidentiality of customers

7. Having a capable legal and lobbying team to protect property rights and to deal with a possible

anti-trust suit

The most important CSFs are the ability to recruit a quality workforce and obtaining

a strong brand image. Because the industry is characterized by ‘word of mouth’ and

‘continuous innovation,’ these two factors play critical role in computer service industry.

Critical Failure Factors

There are also critical failure factors such as being unable to create innovative services in

advance to competitors, losing confidentiality. The inability to prevent identity theft is one of

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critical failure factors. One disastrous event of losing confidentiality can devastate the entire

good image a company ever built.

External: Trends, Issues, major competitors, and Competitive Forces

Trends: There are several external trends, issues, and forces that Google must consider in order

to remain competitive.

Increasing number of Internet users and E-commerce customers

Blogging and User Created Contents (UCC)

Increasing concern of identity theft and Internet confidentiality

Convergence of technology, such as computer and mobile device

Fast pace in innovation and product transformation and development

Increasing number of competitors who using “targeted online advertising”

A growing market for search based advertising domestically and globally

Increasing demand for multimedia search

Growing demand for wireless technology

Issues: Major issues should be forecasted and scanned before it severely affects the company.

Current issues of the industry can be the criticism concerning Google’s monopolistic power in

the search segment. The issue is critical because it would force the government to set another

regulation which could be very unfavorable to the company.

Major competitors: There are three major competitors in the information technology service

industry. They are MSN, Yahoo, and AOL.

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1. MSN: MSN is a subsidiary of Microsoft Corporation. Microsoft has seven product segments:

Client, Server and Tools, Information Worker, Microsoft Business Solutions, MSN, Mobile and

Embedded Devices, and Home and Entertainment. MSN has strength in its membership services,

financial resources from Microsoft, and its ability to offer business solutions and web page

design and development for small new businesses. On the other hand, the company’s weaknesses

are its “inability to mount a platform for online auctions and its ineptitude in the sale and

distribution of still images and other multimedia products. Also, it seems to be having a hard

time to recruit and retain quality and technically proficient workers. Although several issues,

such as anti-trust concerns regarding Microsoft’s attempt to embed its search software into

Windows, impede MSN’s aggressive movement toward the Internet search segment, the parent

company’s capability to offer a wide range of software and service plus a huge financial resource

is a great threat to Google.

2. Yahoo: Yahoo classifies its business into three categories: Search and Marketplace,

Information and Content, and Communications and Consumer services. It place second to

Google in terms of the number of search service and leads the competition in all other Internet

services. The company has strength in huge registered membership, domain name registration,

web site design & development, web hosting for small & new businesses. It has weaknesses in

managing and assuring confidentiality about members’ information, lack of ability to link its

search engine to established services, and no platform for online auctions. Yahoo’s current

strategy focuses on “extending the marketing platform and access to Internet users through the

distribution network of third-party affiliates.” This strategy is clearly a big threat to Google.

3. AOL: AOL is a subsidiary of Time Warner Inc. Time Warner’s business falls into five areas:

America Online, Cable, Filmed Entertainment, Networks, and Publishing. It place fourth in the

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Internet search segment behind Google, Yahoo, and MSN. The company has strength in secure

website and the variety of services it provides. On the other hand, it has weaknesses in “its

inability to effectively market to non-AOL Internet service subscribers” and current weak

position in the Internet search service. However, regarding the current development of interactive

communication technology, its current good position in the variety services might be a great

threat to Google. For example, if Time Warner successfully combines the search service to the

cable television and broadcast networks which it already well established, the event will create

substantial revenue source to the company while Google loses a very promising market.

Competitive Forces: Using Porter's Five Forces Model, the Internet search service industry

can be summed up as:

Threat of New Entrants – High: There are no strong barriers to entry due to low start-up costs,

virtually no regulation.

Rivalry among Existing Firms – High: Competition is fierce. Major competitors, including

MSN, Yahoo, and AOL, which offer very competitive, have strength in membership related

Internet service eager to compete against Google in this segment by using their strength in

market share, user loyalty, and brand identity.

Bargaining Power of Customers – Low: although customers’ bargaining power is increasing

largely due to the increasing trend of self-creating website or blogging to Ad themselves, they

have little power and intend to negotiate the contents or services of Internet search service

providers. Furthermore, customers do not exactly know how Google or other companies

calculate advertising fees.

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Bargaining Power of Suppliers – Low: Majority of Internet users unintentionally or

automatically supply information to the service providers by searching something using the

providers’ search engine. Although some information must be paid to use, it is not a big issue for

the firms in this industry, in general.

Threat of Substitutes – Low: although there are a number of traditional substitutes i.e.

newspaper, television for obtaining information, people, in general, think that the search engine

is more efficient and time-saving for finding relevant information than the substitutes .

All in all, the industry is quite profitable and promising in terms of low threat of substitution,

little bargaining power of both customers and suppliers, except for high threat of new entrants

and fierce rivalry.

Opportunities

The opportunities available to the company are the following:

The increasing number of internet users and e-commerce customers keeps the

computer service industry growing and profitable as long as the company maintains

competitive edge against competitors.

The opportunity for global expansion of business is also increasing concerning the

growing computer technology, personal income and number of internet users overseas.

The acquisition of innovative firms which offering unique services.

Alliances or joint venture with innovative firms

The technological advances in other areas, such as mobile device, wireless technology

will bring another opportunity to expand market presence.

Growing demand for multimedia search and growing demand for target advertisement

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Threats

The threats to the company are the following:

Growing concern of “Click fraud,” identity theft, and hacking (the increasing chance of

losing confidentiality by identity theft)

Entrants of new / innovative competitors with more powerful Internet search technology.

Major competitors’ increased focus on target advertisement using their advantage

of established memberships and a variety of non-search Internet services

Major competitors’ intend to develop more advanced Internet search technology,

such as Microsoft’s next version of the windows system, “Longhorn.”

A high level of unpredictability with regards to the direction of innovation

Alternatives and Analysis

An array of options may exist for Google, including the following:

Focus on current business and its distinctive competence by continuing to develop a

superior search engine (proposed by Larry Page) and focus on R&D to develop advanced

search engine or platform for mobile device, especially smart phone, considering the

trend of convergence.

Focus on expanding business scope by adding a broad range of services and

communication tools (proposed by Sergey Brin) and focus on diversifying services by

offering membership-related services

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Focus on expanding globally by forming alliances or acquiring foreign companies

which offer major portal services in their countries.

1. Focus on current business and its distinctive competence by continuing to develop a

superior search engine. It is a winning formula that had been proven by the success of

Google. The benefit of this alternative is that it allows Google to remain a dominant force in

Internet search technology. It allows the company to keep focusing on doing what it does

best. This would allow the company not only to sustain revenues from current business but

also to find additional sources of revenue. It also could leverage R&D of superior search

engine for other mobile devices. The alternative is feasible because the company has

strength in (1) its ability and culture to develop innovative technology and services (2) a

quality workforce. This alternative could win against the competition because “Google is

the segment leader in market share with regards to Internet search technology” and has

established brand name recognition and international popularity. Google could further

expand its superior service into the international arena and a mobile device market. It also

could develop advanced advertising technique such as “cost per impression,” and “target

advertisements to specific geographical locations and to user interests” to increase Internet

search market share. The major drawback to this alternative is that Google might be forced

by potential entrance of superior search engine to loose lots of market share and revenue

source because the company does not well diversify its business to absorb the shock. A Way

around this drawback is for Google would be able to introduce other revenue generating

services aside Internet search, such as providing online business solutions and web page

design.

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2. Focus on expanding business scope by adding a broad range of services and

communication tools (proposed by Sergey Brin) The benefit to this alternative is that

Google could reduce the risk of not having a wide range of services. It would allow the

company to build a solid membership base which will increase the probability of generating

advertising revenues through increased online activity. The alternative is feasible because

Google has enough profits and financial flexibility to expand into other areas. In order to

win against competition, Google should use its superior Internet search technology and

strong brand name and recognition as a platform to compete against major competitors.

Furthermore, the company should establish a very secure service to assure members in terms

of confidentiality and credibility. The drawback to this alternative is the risk of not focusing

much on its distinctive competence and the risk from potential administrative inefficiencies.

Also the company would require a large capital investment in developing and marketing new

services. Ways around this drawback would be for Google to benchmark the best practice

of restructuring a company’s structure and to put necessary administrative effort to make this

change smoother.

3. Focus on expanding globally by forming alliances or acquiring foreign companies which

offer major portal services in their countries. The company has a capability of providing an

interface for over 88 languages and has an international popularity. Based on these features,

Google might be able to successfully expand to foreign Internet searching service market.

The benefit to this alternative is that Google might be able to establish its brand name and

acceptance in foreign Internet search markets and increase profit. Also, it allows Google to

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diversify risks. The alternative is feasible because the company has strength in brand

recognition, international popularity, and financial flexibility. This alternative would win

against the competition because Google might be able to bring its worldwide brand image

to leverage its brand power in domestic markets to gain more market share. The major

drawback to this alternative is that the company would lose some of focus on domestic

market, and the initial investment would require large amount of capital to acquire foreign

firms, and there is possibility of unfavorable pressure to set a regulation against Google by

the foreign and domestic government and competitors, such as antitrust regulation. Also the

risks form different business environment (legal, social, exchange risks, and others) would

force the company loose substantial profit to fit into the environment. Ways around this

drawback are for Google would be able to successfully lobby the foreign government and

competitors to provide favorable condition. The company would be able to prevent any

shock from the different environment by through investigation of the country, society, and

others.

Recommendations

Select the combination of Alternative 1. Google should focus on current business and

its distinctive competence by continuing to develop a superior search engine. The company will

maintain its competitive edge against major competitors by further improving its powerful search

engine. The company will also preoccupy a good position in mobile device market by

providing software or platform for the mobile devices. By doing so, the profit and market share

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of Google in the industry will be increased. In addition, the company will be able to obtain more

benefit from this focus on its core competence because current trend shows that the demand for

Internet search service is far away from saturated, rather it is increasing. Moreover, Google’s

brand image, reputation, and international popularity will be increased because of expanded

market presence into every possible device with which can search information. Finally, the

possibility of providing more delicate and right-on-target advertisements will be increased; hence

profits from advertisements also will be increased. The strategy of focusing on what it does the

best will be the best one for Google to gain more market shares and to remain a top competitor in

the growing Internet search industry. In short, the alternative provides the most potential for

growth and profitability based on the expected state of the future business environment, and

will allow Google to increase its leadership in the industry.

Implementation

For successful implementation of this alternative, Google should develop a set of

objectives to minimize and control possible risks or setbacks of focusing too much on one

thing. Google would be able to diversify risks by providing auxiliary services, such as e-business

consulting or webpage development. Moreover, Google should make current customers and

business partners more loyal to the company by providing some incentives based on purchasing

history. Also, the company must fix current poor administrative structure to prevent prospective

advertisers from turning against the company. Along with, Google should create another revenue

source by focusing on third party web sites operated by smaller firms or independent ‘star’

bloggers. Additionally, Google could find another revenue stream by finding ways to licensing

search technology software to major computer manufacturers and mobile device producers

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to inbuilt a Google search tool bar as a default. Furthermore, Google should expand the search

service not only for online catalogs but also for another promising area, TV home shopping

catalogs.

Needless to say, Google should keep recruiting a quality workforce and keep improving

the capability of current employees. A maintaining the unique and creative corporate culture

could be one way of helping the company to recruit the quality workforce. In Addition, Google

should preoccupy the mobile device and Wi-Fi Internet search service market to maintain

competitive edge. The company should be flexible to the change of industry environment, and it

should be agile to react against possible counterattacks by major competitors and possible

antitrust or privacy-related obligations.

Contingency plans

Management should develop contingency plans to protect the company from possible

unfavorable events.

What if Google fails to prevent identity theft or losing confidentiality? In this case,

Google should provide customers the information about exact cause of the event and

damages from it as soon as possible. Also, the company’s reaction and plan to prevent

future accident should be informed quickly. Moreover, Google needs to prepare the legal

procedures for this kind of event in advance.

What if there is a new entrant of competitor with more powerful Internet search

technology? Google needs to preset the procedures of reaction with regards to the new

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competitor’s size, popularity, and financial strength. For example, if the competitor is not

popular, big, and financially healthy, Google could buy the firm in advance of major

competitors. On the other hand, if the competitor positions itself firmly in the industry

before Google notices it, Google would make an alliance with the firm.

What if there is a severe antitrust movement or privacy-related criticism which will

result in the establishment of regulation? Google needs to have a capable legal and

lobbying team to deal with this kind of event or suit. If possible, Google should prevent

this event in advance. If not, Google must react very promptly to minimize possible

damage.

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