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Contributions to success in the search engine industry

4209 words (17 pages) Essay in Marketing

5/12/16 Marketing Reference this

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Google Inc. is a multinational public cloud computing and Internet search technologies corporation. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program. The company was founded by Larry Page and Sergey Brin while the two were attending Stanford University as Ph.D. candidates. It was first incorporated as a privately held company on September 4, 1998, with its initial public offering to follow on August 19, 2004. We will be analyzing the case study and answering the questions given as below.

The search engine has become such an important part of our lives that many cannot imagine life without it. Every day, millions of users rely on search engines to help them navigate through the trillions of websites on the internet to locate the website or information they want. There are many search engines, but the most popular are Google, Yahoo and MSN Search. Search engines help people locate websites to shop online, to find a destination or to check facts. Academic research has been greatly assisted by the search engine for it has enabled vast quantities of information to be obtained effortlessly. Indeed, search engines have been instrumental in the preparation of this assignment paper.

A search engine can be defined as a website that helps users search for information on the World Wide Web (Battelle, 2005). Search results are normally displayed in a list of results that are termed hits. The results yield information in the form of web pages, information, images and other types of files such as Word, Excel, Powerpoint or PDF. Some search engines also mine data provided in open directories or databases. Search engines work when humans enter input which is then processed algorithmically.

While each search engine has its own features and operating system, all conduct searches in the following order – web crawling, indexing and searching (Vise and Malseed, 2005). Information about web pages is stored by search engines. Information is then retrieved by a web crawler or spider, which is an automated web browser that follows every link on the site (Capron, 2006). Contents of each page are then analyzed to determine how they should be indexed and an index database is created for future use in queries. A query is the input typed by the user and it can be as simple as a single word. The index is then activated to permit information to be found in the shortest time.

When a user enters a query into a search engine, such as key words, the engine examines its index and provides a list that best matches the search criteria. The search engine looks for the words or phrases exactly as entered. The list contains a short summary of the document’s title and perhaps parts of the text. The index created from the information stored with the data and the way in which the information is indexed.

How useful a search engine is depends on the relevance of the results it provides. While some key words may yield millions of results (for instance the word “Monday”), the key is to provide a list that is most relevant and useful to the user’s needs. Generally, search engines rank results to provide the most relevant first, though they vary from search engine to search engine. This is why Google has a leading edge because users find the results to be most relevant.

The search engine has evolved over time. The very first search engine was created in 1990 by Alan Emtage, a student at McGill University in Canada (Leiden, 2001). The 1990s saw a number of search engines come and go like Lycos, Alta Vista and Ask Jeeves. In 1998, a breakthrough was achieved when the Google search engine was launched. In just a few years, Google emerged as the most popular search engine in the world.

People use search engines to search for information on the internet and the type of information search engines provide has remained the same. However, this may change in the near future. Three main forces will bring about changes in the search engine. They are question and answer search, search engines in other languages and mobile computing.

Firstly, search engines today merely provide a list of websites to keyword queries. They do not answer questions posed by the user. For instance, if the user asks, “What is the largest freshwater lake in the world?” the search results would most likely provide a list of freshwater lakes in the world. The user would then have to read each of the websites that appear on the list and hopefully find the answer. This does not satisfy the information need of users. A new website called WolframAlpha promises to revolutionize this ‘question and answer’ service, though it is still in the experimental stage (Newsweek, 2009). It is anticipated that in the next five years, search engines will evolve to answer questions.

Secondly, Google, Yahoo and the like are all good, but they are in English. A majority of the world’s population do not speak English and are thus at a disadvantage when using search engines. China has come up with its own Chinese search engines such as Baidu. While this is subject to China’s strict censorship and Great Firewall, this search engine is proving to be a viable non-English alternative. Search engines in other languages such as Spanish, Hindi and German are being developed and if successful, they promise to cause a shift in the language content of search engines.

The final force that will bring about changes in the search engine is mobile computing. More and more users use portable devices such as smart phones to access the internet, thanks to the development of 3G technology that allows users to access the internet anywhere. Search engines will have to develop to meet the demands of these users. For example, Google has a text messaging service that provides information on directions, movies, restaurants and sports. People also use mobile phones to read emails and access online social networks. This trend will continue into the future and there will be further developments.

Question 2

Success means different things to different people. A business that is successful is one that commands the largest market share, revenue and profits within the industry. In the search engine industry, what are the key competencies, capabilities and resources that contribute to success?

First, let us examine what makes Google such a successful search engine. Obviously, Google’s PageRank technology is what makes the search engine better than the rest in producing results that best suits the user’s needs (Brandt, 2009 and Google, Inc. 2010). People are drawn to Google’ search engine because it is fast and yields better results. PageRank is truly impressive. It is able to solve an equation of more than 500 million variables to rank eight billion web pages by importance in a fraction of a second (Google, Inc. 2010).

Another reason why Google’s search engine is appealing is the simplicity of its design. In that sense, it is like Apple’s products. The home page is clutter free, white and the characters are in cheerful primary colours. The search box is big and there are few features to confuse users (Brandt, 2009). Compare this with Yahoo’s home page which contains so many things from its search engine to its email and news. There is just too much distraction. While Google has advertisements in the search results, the home page is advertisement free, unlike Yahoo’s that contains far too many advertisements.

As a company, there are many factors that contribute to Google’s success. Two of them are the quality of its workforce and its corporate culture. Google is proof that favourable working conditions can attract the best and brightest (Fortune, 2010). While its salaries are below industry standards, people are drawn to the informal work culture that is challenging and promotes creativity (Stross, 2008). In an industry that is famous for its creative types and unorthodox methods, Google’s corporate culture stands out. Google emphasizes that work should be fun. A visit to the company’s headquarters (termed the Googleplex) shows the number of perks and amenities enjoyed by staff. These include workout rooms, a massage room, a baby grand piano, video games and snack rooms (Fortune, 2010). Engineers are also encouraged to spend one day a week on projects that interest them as a motivation technique. This is very successful as research shows that 50% of the new products originate from this innovative time off (Brandt, 2009). In addition, all employees are given company stock and they are motivated to work hard to improve stock prices and dividends as they stand to profit as well.

Therefore, success is the outcome of hard work, innovation and perhaps a bit of luck. Google is successful because it has a good range of products, a workforce that is committed to its success and a work culture that promotes excellence, creativity and personal fulfillment. These are characteristics that can be duplicated in any industry and to any business.

Question 3

Google’s business model may be simply described as a search engine with online advertising. While the company has branched into other areas, these two divisions remain essential to the company’s success. Each complements the other. The free search engine has built the company’s reputation and this in turn is harnessed to generate revenue in the form of advertising. In other words, the search engine builds volume for the company’s users while the advertising and other segments serve to provide revenue and profitability.

Initially, Google was just a search engine. It did not believe that it should charge users for the search engine service. This is not unique to the company itself. Rather, it reflects the broad consensus that the internet is an egalitarian institution which enables and empowers users from around the world to share and access knowledge and information. To this day, many companies provide free internet content to users (the New York Times for example) and feel that it would be a betrayal of this ideal if they start charging customers. Hence, the only way these companies can actually earn money is through online advertising.

Currently, Google has five main business segments. They are search engine technology, online advertising, performance based marketing, AdWord products and AdSense Products (Google, Inc. 2010). The heart of Google’s existence is its search engine. Without it, the company would not be the success it is today. What sets Google’s search engine apart from the rest is the PageRank technology that is used to archive and organize internet web pages that is used to develop a searchable database. PageRank was created by the founders of Google, Sergei Brin and Larry Page. So successful is this technology that Google commands 65.6% of the US market as of November 2009 (Auletta, 2009). Apart from the normal search engine, Google has developed search products for videos, photographs and even blogs.

As wonderful as Google’s search engine is, it does not yield any income by itself. Therefore, the company has resorted to online advertising as its main source of income. In 2008, 97% of the company’s revenue was generated from advertising (Google Inc. 2009). Google’s paid search advertising is unique because it is performance based. That means that advertisers are charged only when a user clicks on their advertisement. This is called cost per click (CPC). Other online and traditional media charge advertisers based on the number of users that are presented with the advertisement. For example, newspapers charge based on circulation, television stations based on number of viewers and so on. However, this blanket approach is less effective because it does not really focus on the target market. Google’s advertisements are contextual, meaning that if somebody is looking for a webpage of a product or service, there would be advertisements of that product or service on the website. Therefore, such users are more likely to find out more about the advertisement than a generic reader who is uninterested. There is ample proof that this strategy is highly effective to businesses that report a spike in sales when they advertise on Google. In addition, since advertisers pay based on marketing performance, higher advertising returns are generated.

Google’s AdWords product is a subset of its online advertising division. Advertisers have the ability to show their advertisements when a particular word or phrase is entered into the search engine. Some words can be bought by many advertisers so Google has come up with an auction system in which advertisers bid to have their advertisement ranked higher up in the search results. This way, advertisers specify how much they are willing to pay per click. AdWords contributed 66% or $14.4 billion in revenue for Google in 2008 (Google, Inc. 2009).

Another product that is offered by Google is AdSense. This product embeds advertisements into websites that are listed in Google’s network. The product displays advertisement based on the context on a particular website. For instance, cooking utensils website would be included in sites featuring recipes. Since AdSense is hosted by non-Google websites, the company has to share its revenue with others. However, the percentage of revenue generated from this division has been diminishing. For example, in 2005, AdSense comprised 44% of revenue, falling to 35% in 2007 and down to 31% in 2008 (Google, Inc. 2009).

Google has developed a host of other products that utilize its search and data recall capability that is able to generate advertising revenue. One of them is the phenomenally popular YouTube which is a video sharing site that permits users to view and upload videos. The site is also a vehicle for movie studios and television stations to run trailers of new programs. Google has also its own email provider called Gmail. This is used as a platform for displaying targeted advertisements within emails. Google Apps is the company’s division that provides free computer applications such as word processing, spreadsheets and desktop search. There is a premium version of Google Apps that is used by institutions such as schools and government agencies that pay for the service. Google Book Search is another innovation by the company. This aims to scan and copy millions of books from libraries and make them available on the internet (Auletta, 2009). However, the company has been accused of copyright infringement and forced to pay publishers and authors millions in damages.

Google has employed a strategy of acquisitions and partnerships to maintain its competitive advantage. While mergers and acquisitions may be unsuccessful in general, Google has demonstrated that acquiring the right company can benefit it. Since 2001, the company has acquired many small venture capital firms that possess the workforce or technology that it needs. Also, Google has partnered with other companies for many purposes ranging from advertising to research.

Question 4

Google’s business model and strategy have been proven to be enormously successful. For a company that was founded in 1998, it achieved revenues of US$23.65 billion in 2009. The company’s initial public offering in 2004 saw shares sold at $85 per share. By October 2007, the price per share was $700. These demonstrate the company’s astounding ability to register growth and achieve profitability. The following table summarizes Google’s financial performance from 2005 to 2009:

Google: Summarized Financial Data from 2005 to 2009

2005 (US$ Million)

2006 (US$ Million)

2007 (US$ Million)

2008 (US$ Million)

2009 (US$ Million)

Revenue

6, 138.6

10, 604.9

16, 594.0

21, 795.6

23, 650.6

Gross Profit

3, 567.1

6, 379.0

9, 944.9

13, 174.0

14, 806.4

Operating Income

2, 107.3

3, 550.0

5, 084.4

6, 632.0

8, 312.2

Net Income

1, 465.4

3, 077.5

4, 203.7

4, 226.9

6, 520.5

(Source: Google, Inc.)

The company has registered strong growth in revenue and net income over the five year period. While revenue growth may have declined slightly over previous years, revenue has grown by an average of 50% per annum until 2007. Google has what is termed Traffic Acquisition Costs (TACs), which are operating costs that are approximately 30% of total advertising revenue. The company has been careful in controlling costs and has achieved slight reductions in TACs through investments in innovation. Cost reductions have also translated into higher net income. This is an impressive figure, especially for a giant like Google. Therefore, investors should be elated with Google’s financial performance.

To demonstrate the company’s stellar performance, let us compare it with the financial figures of its closest rival, Yahoo.

Growth in Gross Revenue: Google and Yahoo

Gross Revenue (US$ Million)

2006

2007

2008

Google

10, 604

16, 593

21, 795

Y-o-y Growth (%)

53

31

Yahoo

6, 425

6, 969

7, 208

Y-o-y Growth (%)

8.4

3.4

(Source: Morningstar Investment Research)

Clearly, in terms of gross revenue, Google is far, far ahead of its rivals. Its 2008 advertising revenues were almost three times more than Yahoo’s. The company also registered strong double digit growth, compared with Yahoo’s single digit and declining growth. Therefore, the company should ensure that it does not lose its market share to competitors in the long run.

Now let us compare some of the key financial ratios of the three companies. These are my own calculations.

Financial Ratios: Google

2005

2006

2007

2008

2009

Gross profit Ratio (%)

58.1

60.2

59.9

60.4

62.6

Net Profit Ratio (%)

23.9

29.0

25.3

19.4

27.6

Financial Ratios: Yahoo

2005

2006

2007

2008

2009

Gross profit Ratio (%)

60.1

58.4

59.3

58.1

N/A

Net Profit Ratio (%)

36.1

11.7

9.5

5.9

N/A

Therefore, it would be better to compare Google with Yahoo for they perform approximately the same business. While the two companies have comparable gross profit ratios, the net profit ratios of Google hover over 20% while Yahoo’s has been declining. This would imply that Google’s efforts at controlling selling, administration and financing costs have been effective.

Historically, Yahoo was the leading online search engine, but it has been overtaken by Google. Yet, Google should not rest on its laurels. There is constant talk that the two companies may merge or form a partnership to take on Google. If and when this happens, Google will have to fend off very stiff competition for the combined forces of Yahoo.

Google’s attempts at diversification are showing signs of success. Google Chrome, the company’ web browser was launched in 2008 and to date it has attracted 40 million users (Google, Inc. 2010). The company will also launch its own operating system late this year and it will be based on internet based computing applications. Google’s Android, its free open source mobile development platform allows users and companies to develop software for mobile phones (Google, Inc. 2010). Google also launched its own smart phone this year. While it is still far behind the iPhone, subsequent versions will prove to be better.

For now, Google should be the darling of investors. The company is well run and continues to profit stockholders in the form of high dividends and impressive capital appreciation.

Question 5

For Google to sustain its competitive advantage, it needs to build on its strengths. These include the company’s reputation and familiarity for users. Google has become a household name and part of the standard lexicon. It has become synonymous with search engines the way Coca-Cola is known for soft drinks. Hence, the company should leverage on its brand name. Branching out into smart phones and computer software are ways in which the company diversifies through its brand name. Another major strength of Google is the speed and user friendliness of the search engine which is based on relevance ranking. While Google’s system is superior to others, it is constantly formulating new ways of improving the search engine and spends billions on research and development. This is crucial to ensure that the company stays ahead of the pack. One constant fear is that a rival that is better will emerge.

No company is perfect and Google has its own flaws. For example, the content of searches is arbitrary. The user may not get the information that he is looking for. Also, there is the risk of dead ends. For instance, the user may find the citation to the article or web page, but cannot access the full page (Stross, 2008). This may not be entirely Google’s fault, but it can be frustrating to users. Furthermore, searches are done by computers and results are obtained mathematically. There is no expert search feature which would enhance the process. The list of search results is based on popularity and not quality. This puts students and scholars at a disadvantage. Finally, Google’s search engine is in English. People who cannot read English (and they number in the billions) cannot use Google and this represents a loss of market share. While Google currently has a language tool that translates text into 35 languages, it may not be of good quality sometimes. If Google could make multilingual versions of its search engine the way Wikipedia does for its online encyclopaedia, the company could prevent loss of users to other search engines that cater to their linguistic abilities.

Cloud computing is a recent development and refers to computing through the internet. Currently, computing is computer based as it relies on hardware and software that are stored on a PC (New York Times, 2008). Therefore, cloud computing customers do not own the physical infrastructure and rent it from third party providers. Rental is charged in the manner of utilities or on a subscription basis with few or no upfront charges. This represents tremendous cost savings to businesses which no longer need to incur massive capital expenditure on computer infrastructure. The appeal of cloud computing is that data can be accessed anywhere with internet connection. This is in contrast to the current way in which data is stored on a computer hard drive which does not permit mobile users to access data.

As mentioned earlier, Google has made great strides in mobile search. New 3G technology has enabled internet access for those with smart phones and Google has capitalized on it by providing a host of services. The company should build up on this and continue to offer more free apps to users. Android, the operating system for a smart phone developed by Google is a first step into developing a full range of smart phones (Google, Inc. 2010). This is a positive move because the smart phone market is worth billions and is growing. Therefore, this is an ideal time to enter the market.

Google is aggressively promoting its cloud computing division and it should as there are tremendous opportunities. However, the major hurdle of cloud computing is customer perception of security (The Economist, 2009). A company’s data may rank among its most valuable assets and many organizations are uncomfortable about their data being stored in a ‘cloud’ that can be hacked, notwithstanding constant reassurance about safety. Customers feel more secure when data is stored within the company. Furthermore, there are privacy issues to contend with as companies hosting the cloud services control and can monitor the communication and data stored between the host company and user. Therefore, Google needs to address these issues so that cloud computing can flourish.

Finally, Google could improve its auction system for traditional media ads. The current system in which businesses bid to be ranked first is good and the company should build on this success. However, Google’s cost per click system of charging advertiser needs to be improved to prevent click fraud. This occurs when a person or automated script clicks on advertisements without being interested in the product merely to profit from the website owner. In 2006, almost 20% of clicks were fraudulent or invalid.

In summary, in order for Google to continue its success, it must stay true to its credo of “Don’t be evil”. The recent debacle over Google in China demonstrates how a company can betray its ethos in the name of profits. Google must be more selective in its business dealings and not betray its ideals and the aspirations of its users. Similarly, Google should be more circumspect about ways in which it handles users’ private information and not turn into some kind of “Big Brother” that monitors everything a user does and sells the information to marketers (Auletta, 2009). If Google can continue to innovate and at the same time be ethical, there is no reason why it should fail.

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