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History Of Google And Its Economic Growth Economics Essay

1368 words (5 pages) Essay in Economics

5/12/16 Economics Reference this

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Googles mission is to organize the worlds information and make it universally accessible and useful. From the beginning, Google had a lofty goal, but as time has passed, Google has without a doubt shown its potential. Leading the search engine industry in market share, Google is one of the largest and fastest growing technology companies in the world. Driven by advertising revenues, Google has gained success by providing relevant search results while also offering advertisements which are related to the content of each specific web page. Additionally, Google offers a variety of free services and products, ranging from a myriad of free search services, to Google Maps, to services available for mobile phones. Because these services draw millions of users to Google’s websites every day, advertising revenues provide a steady stream of income.

Google has posted significant growth rates over the past five years, resulting in a stock price of more than $500. While the market values Google’s stock at $504.77 as of June 12th, predicted valuation based on free cash flows shows that it is slightly overvalued by less than 0.3%. Despite lofty predictions and great potential for the future, Google’s stock price should only be valued at $503.32, which is based on free cash flow estimates. This report may represent a conservative estimate, as Crystal Ball analysis shows that given specific assumptions, Google’s stock price could range from under $100, to more than $30,000 per share. Overall, Google has tremendous potential as a company, while constant innovation may prove to be the cornerstone of Google’s continued success in the future.

Company Overview

In the beginning, Google was nothing more than a research project developed by two Stanford graduate students. In 1996, Sergey Brin and Larry Page had developed a search engine with a unique method of ranking search results. As the need for a relevant search engine on the internet became clearer and clearer, Brin and Page registered the domain in 1997 and officially formed Google, Inc. on September 7, 1998. Google had an advantage over other search engines at the time because their search results were ranked in a relevant manner; based on the number of sites linking to each specific page. Because of the high quality search results and their simple approach to searching, Google’s popularity has grown substantially over time. Along with their growth in popularity, Google has grown to employ more than 10,000 people worldwide, while also being ranked as the best company to work for by Fortune Magazine. The term ‘google’ was derived from a misspelling of the word ‘googol,’ which refers to 10100, and the name stuck. Also, due to the popularity of the world ‘google,’ Merriam-Webster added the term to their dictionary defining google as “to use the Google search engine to obtain information on the Internet.” As ‘googling’ things became more commonplace, Google’s revenues grew tremendously through the use of advertisements. Although Google’s advertising revenues have risen every year in the past five years, Google went public on August 19, 2004, offering 19,605,052 shares at $85 per share. Since then, Google’s stock price has ascended to more than $500 in early 2007. While Google’s initial market capitalization was roughly $1.7 billion, that figure has ballooned to more than $157 billion in subsequent years. In addition, Google has made many acquisitions to allow for continued innovation.

While Google has acquired more than 30 companies since its inception, a few important ones stick out. In 2003, the acquisition of Applied Semantics, Inc further developed their advertising campaign, allowing for advertisements relevant to the context of each page. In early 2006, Writely, a web-based word processing firm, was acquired, which laid the ground work for Google Docs to be released. In late 2006, Google outbid other competitors to acquire Youtube for $1.65 billion. The Youtube acquisition is interesting because since then, both the website and the company of the popular video site have remained unchanged, almost remaining a completely separate entity. In early 2007, Google acquired DoubleClick, a large advertising competitor for $3.1 billion.

Since then, anti-trust issues have arisen and there has not been much development as a result. Around the same time, Google acquired Tonic Systems, which is used for adapting Microsoft PowerPoint files into html and PDF documents. This is significant because, when paired with web-based document and spreadsheet software, Google will be actively competing with Microsoft Office. Since then, a few other acquisitions have been made, but they mostly have been for internal company use, including video conferencing, graphics optimization, and security software.

Products and Services

The majority of Google’s products are in the form of free software, although there are a few exceptions. These software products are the basis for Google’s end-user services. These services earn Google a huge daily audience, attracting advertisers. Google’s revenues come mainly from their advertising services, AdWords and AdSense, representing 99% of revenues. Google AdWords are designed to display advertisements relevant to the context of each specific web page. Companies pay Google to place AdWords on the sites of Google and its affiliates. On the other hand, Google pays publishers to embed AdSense into their sites. AdSense and AdWords both contain the same advertisements, but publishers who use AdSense get paid when users click on advertisements, while AdWords users pay Google to include their ads on its pages.

Google also offers two pieces of hardware; the Google mini and the Google Search Appliance. The Google mini is designed for small companies, while the Google Search Appliance is tailored to medium and large businesses. Both are rented to companies to facilitate searches within the company intranet, or for commercial use on their websites.

Google offers a variety of free products and services. The free products Google offers include Gmail, Google Docs & Spreadsheets, Google Desktop, Google Toolbar, Picasa, Google Analytics, Google Maps, Google Earth, Google Finance, Google Checkout, Google for mobile phones, Youtube, and a variety of search related services.

Gmail is a free web-based e-mail client, Google Docs & Spreadsheets include free word processing and spreadsheet software for online and offline use, and Google Desktop is used for local searches on users’ home computers. Google Maps now have the capacity to show actual satellite images via Google Earth, while it also shows current traffic conditions. In addition, Google has recently added a service called Google Street View, which allows for virtual tours of entire cities. Google SMS allows for users to send text messages to 466453 (GOOGLE) with queries from their phones searching for topics ranging from weather, sports, or local listings, to driving directions and even flight status updates. Google facilitates most of these free services with advertisements, while many products are still in beta versions. In addition, Google is always developing new and innovative programs through Google Labs. One of the most interesting projects from Google Labs is Google Gears, which essentially allows for offline access to a variety of online files and pages. This project is very important because it may one day rival Microsoft’s Windows operating system.


While Google accounts for nearly 50% of the market share of all searches on the internet, it has a few main competitors. Yahoo is the biggest competitor by far, at around 28.5% but Microsoft isn’t too far behind with 10%, while other competitors include and AOL, which both hold around 5% market share. Because of the variety of Google’s products and services offered, it is hard to target one main competitor. Yahoo is the most comparable firm because they provide a variety of similar services, such as search, advertising, e-mail, maps, and the Yahoo toolbar, but they do not compete in many of Google’s other respects. Microsoft on the other hand offers search, a few online services, but their focus has mainly been on software and operating systems. Google has recently grown into competition with Microsoft through Google Docs & Spreadsheets, along with development of presentation software and a product which may eventually compete with Microsoft Windows, Google Gears. Furthermore, through internal development and acquisitions, Google will most likely expand the products and services it offers to compete in completely different markets, not just software, and web-based services.

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