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The world of today is growing and increasingly becoming more connected due to the means of communication available today through internet. For many of us, a giant search engine like Google has made internet more navigable. Google stands to benefit with increased number of queries. The company has released its Android Mobile Phone Platform and Operating System as well as the Google Mobile App to enable more people to access Google’s services.
POTENTIAL NEW ENTRANTS
There is a very high barriers for entry in the internet search market. The current competitors have thousands of servers deployed in many locations all over the world and data is accumulating at a very rapid rate. A new entrant would need to provide better search results at very fast speeds to compete in this highly competitive market. With that in mind, it must be recognized that when Google was founded in 1998, Yahoo, Excite, and Altavista dominated the search market and Google has since eclipsed them all (Viney, 2007).
Google’s ad system is a reliable source of income because both the ad-making partner and ad-receiving individual are both customers of Google’s. So as long as Google maintains its market dominance with the search product, supplier bargaining power will remain low. Google’s cost of revenue as a percentage of sales in 2007 was 40% (Google, 2007).
Presently, 57% of internet searches in the United States (Agence France-Presse, 2008) is commanded by Google. This large market share enables them to improve the quality of their search results and targeted ads more quickly than their competitors. A sort of self-perpetuating is created, draw for customers as the search results constantly improve.
99% of Google’s revenues are derived from advertising (Google, 2008). However, no single account contributes more than 3% to net revenue, and less than 5% of the revenue is generated by any given network partner site (Google Inc., 2007). This means that no single buyer has a controlling interest. In Google’s system many advertisers bid on keywords. Popular keywords like “Dallas Texas” are sold for much higher value-per-clickthrough than obscure topics (Google, 2008). Both large companies and small “mom-and-pop shops” are constantly increased by the distributed approach of google, keeping buyer power low.
Google has always taken its technological needs very seriously. Technology is obviously improving and Google has taken specific steps to make sure it does not fall behind. Google can use commodity computer parts (cheap components) knowing they will fail by ensuring that every component always has a duplicate. The components are attached to the computer with Velcro rather than screws which allows for quick swapping and upgrading (May, 2007).
Google is a relatively young company that has been public since August 2004. At that time, only 85$ was the share of stock for paltry. By late 2007, it reached a high of around $750, a whopping 882% return in 3 years (Google, 2008). The shares have now dropped down to the high $300 range (Google, 2008) due to the recession the United States is currently experiencing.
Google earns approximately 99% of its revenue from advertising (Google, 2008). online products are free to use and are supported by text ads that are displayed within the interface (Google Inc., 2007). This begs the question of whether Google has a sustainable business model if in the future people begin to ignore internet-based advertisements.
VALUE CHAIN ANALYSIS
Google’s primary activities in its value chain vary slightly from a traditional model where raw materials are processed into finished goods for sale to a customer, gaining value in each step of the process. Since Google doesn’t produce physical products, its value chain is a bit more nuanced. Google gathers all the web users it can (the raw material) by enticing them to use its stellar search product with highly relevant results delivered promptly.
Google uses advanced analytics to measure the efficiency of its supply chain (the web users). This data about the history of its users is important because it helps Google improve its search algorithms and advertising interface. New customers can attracted by new technology and word-of-mouth promotion by its loyal users which increase the profit margin.
Google search products provide relevant websites promptly which brings value to their customers. Because of their rare product Google has achieved top market share in search industry. They are able to provide excellent links in the first few results for both well-known subjects such as “Dallas Cowboys” and uncommon, “long-tail” searches like “cerebrospinal fluid”.
Because of the relevancy of the results Google search results are very rare. Google’s main competitors, Microsoft and yahoo, simply do not provide links that are as useful as Google’s.
Google’s website is very uncommon because it features has a minimalistic design. Most websites feature some sort of banner advertising and are littered with hundreds of words. There are only 28 words in Google’s home page as a policy established Sergey Brin and Larry Page, the company’s founders.
Google has a rule that employees can spend 20% of the time working on pet projects that are not part of their job description. Untapped businesses of Google gets innovated and diversify through motivation but usually still makes use of their core competencies and capabilities. In fact both Gmail and Google News started off as 20% projects.
Several of Google’s products including Docs, Earth, and YouTube are derived form acquisitions. These products have expanded Google’s brand and brought the previous users of these services to Google. DoubleClick, as mentioned earlier, added the banner component of Google’s advertising business and brought along significant revenue to Google’s income statement.
Google understands the wealth in diversification. The cost of production, advertisement, etc can be reduced by Exploring new opportunities constantly over a solid base of research which can prove profitable. These new products are crucial in gaining leverage in the constantly changing market and providing an alternative industry if need be. Google understands that valuable profits and minimized risk can be garnered with international operations.
Google’s success is clearly attributable to how it treats the people who have a stake in the company. Google’s founders started the company with a unique vision and the implementation of that vision has been very successful. The degree to which the company succeeds in the future will largely depend on how it leverages its experience while staying true to that vision.
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