Google Internal Environment and PESTEL Analysis

ABSTRACT

The purpose of this project is to strategically analyze a multinational company of our choice. Our case study is Google Inc. which we will analytically break down, using various sources. We chose Google because we found really interesting due to the fact that not only it is the biggest internet search engine to date, but also a pioneer in its industry. Based on existing literature and web references, will try to analyze its internal and the external environment.

INTRODUCTION

Google has occupied the dominating position in its industry since the beginning due to its unique product which is a result of its unparalleled working environment. It has gone on to attain the largest share of the online search engine market as it provides its users with a product that is difficulty substituted even though there are numerous competitors. By analyzing the internal and external environment of the corporation, it is evident that Google is running a well oiled machine, paying attention to even the least significant detail in order to ensure that it provides a prompt and reliable product to its customers.

History

Google was founded around 1995 by Larry Page and Sergey Brin while they were still university students. The idea was based on page’s PhD research project called “Backrub. This involved mathematical properties of a link structure on the internet. Having indexed over 50 million web addresses, Google was formally incorporated by 1998.it has such significant influence that a company could either greatly benefit, or be seriously harmed depending on the search rankings. Besides being the top search engine, Google features other functions such as Gmail, Google Earth and Google Docs. Moreover, Google’s extreme success and constant expansion and development are due to their unparalleled working environment which not only aims to keep everyone happy, but successfully does so. (Google, 2011, Keller et al, 2008)

INTERNAL ENVIRONMENT

Resources & Capability Theory

Sources

The combination of sources and capabilities, defines a good strategy of a company. Google achieved to combine ideally its sources and capabilities, as we can see that its strategy, is working. One’s company resources can be separated to tangible, intangible and human. Referring to Google’s tangible resources are the financial sources from advertising companies, raw materials, mechanical equipment, modern facilities, innovative design of homepages and hardware. As for the intangible resources they are, high technology, worldwide reputation with users and suppliers , strong brand name , huge data-base, patents like Google – Earth and eco friendly Blackle. Another important intangible factor is the business culture of Google which does not only care about the service of users but also cares about vast working environment. Moreover as for the human resources, Google has a large amount of high-skilled and capable staff. Furthermore, another important factor of Google’s success is its ‘know – how’ which can’t be imitated by any other rival firm. In addition all employees are experienced in the market of information based services. Google has strong leadership combined with training which resulted in loyal staff. (Christodoulou, 2010, David 2007)

Capabilities

The combination of sources, tangible, intangible and human resources create the appropriate capabilities. Capabilities separated as marginal capabilities which cannot easily imitated and fundamental capabilities which can. By combining its resources, Google creates some very effective capabilities. Flexibility, quick response and speed of distributing the information are produced by the combination of huge data base with the highly advanced software. These capabilities are fundamental because they cannot be copied easily. Another fundamental capability of Google is innovative and effective human resources management. This is also a result of good leadership with highly skilled and specifically trained staff. Furthermore, the combination of human resources with the software and innovations has the result of design capability, which is imitated. The right transmission of information between leadership, employees and the culture of Google results in good communication, as a fundamental capability. The combination of the right organization in human resources with the program system creates the fundamental capability of quick responsiveness to customers. (Christodoulou, 2010, David, 2007)

Competitive advantage

Value

Google provides a high value product which satisfies its consumer needs, whatever they may be, quickly and efficiently. A costumer can use its search engine when looking for information on literally anything as well known, or not, that would be. This is what keeps it in its market dominating position as the leading search engine as it provides such a rare product. Furthermore, Google uses a program call AdSense which is vital I order for businesses to generate income. This is due to the fact that there is more traffic, hence more exposure, which consequently leads to an increase in sales. (Morrow, 2009, Thompson and Strickland, 1998)

Rarity

Google’s rarity can be seen even on its homepage which is unlike any of the rival companies. There is a 28 word limit policy for the homepage, meaning that it is the only one that which is completely clutter free, letting customers focuses on what they want to use the product for without any distractions. This in turn shows that Google inc. wants to provide a high quality product that meets consumer needs, rather than trying to gain profit from annoying advertisements .Furthermore, the relevancy of the results of the search engine make it evident that Google succeeds and reaches its aim to provide a product of the highest quality for each customer. Compared to its competitors, yahoo and Microsoft, it is the most efficient and accurate when providing a consumer with the result. (Morrow, 2009)

Imitablility

Google’s unique homepage has not been imitated by its competitors due to the fact that they are more interested in what consumers need to feel relaxed using this search engine, rather than profiting from advertisements. In addition even if competitors try to imitate Google’s results, they would require an enormous database, extremely fast computer memory, and servers all around the world. Furthermore, Google try traces what you search each time and in a way gets “smarter” in order to provide you with the most relevant results each time you search. It basically can tell what you are looking for even the word which have been used has more than one meaning. (Morrow, 2009)

Substitutability

The fact is that Google has substitutes, such as Yahoo, Microsoft, Ask and Bing however it continues to dominate the market as it provides the best product and therefore gaining strong customer loyalty. (Morrow, 2009)

Value chain

Due to the fact that Google provides information based services, which is a nonphysical product, its value chain differs from the traditional form. Their raw materials are the web users who use Google to search. The same users are then directed by text advertisements into their advertising partners’ websites where the sales occur, which is also the finished program. Furthermore, the search engine works in such a way that it keeps record of the users previous searches in order to provide more relevant results in future searches, which in turn means that web users are directed to websites where there is more probability that purchases will occur. In addition, due to highly skilled and qualified staff, the dependency of primary activities on human resource is quite high and so causes an increase in costs. Operations, sales, distribution and services are conducted with the aid of Google’s servers and its internal software, all of which contribute to the value chain as they increase the firm’s profit. It also spreads its operations globally in order to be constantly aware of changes which in turn help Google maximize its profit. (Morrow, 2009)

Mission Statement

“To organize the world information to make it universally accessible and useful” From this statement we can see that Google Inc is not interested in profit maximization but strives to meet the needs of its customers with a high quality product. Also Google states that sharing information and giving access to it, so that every person in the world could find whatever he needs from a source of his preference. (Morrow, 2009)

EXTERNAL ENVIRONMENT

PESTEL

Political

As for the political environment, Google has few political restrictions. Firstly, one of the political problems that it faces is with the Department of Justice, due to the fact that there are plenty of inappropriate content and classified documents. Secondly, it has problems with the Chinese Government, because of censorship of searching results. Google tries not to have problems with censorship globally, because of its cooperation with the U.S Government and the protection of personal privacy. For this reason, it has created privacy terms on its homepage, where users can find information. In addition, many countries of Asia have limitations on what can be searched, but generally the majority of countries around the world do not have restrictions. (David, 2007, Morrow, 2008)

Economical

Nowadays, there is an economic crisis all over the world witch significantly affects global sales. Furthermore, one of the countries that have been hit the most are the United States, where Google is located. However, this crisis has not affected Google, because it does not sell direct products, but services which are funded by advertisements. Also, the free provision of Google leads to an increase in its popularity, which in turn maintains its good relations with advertising firms. Finally, its excellent knowledge of the market allows Google to be able to respond to any kind of crisis. (David, 2007, Morrow, 2008)

Social

Google’s great advantage is that there are no social restrictions, because its services can be used by everyone despite age, religion, nationality and living conditions. Another advantage is that is not a seasonal company, for the reason that its services are always desired. Also, the development of technology and the trend of using Internet through computers and mobile phones have increased in the last years, impacting Google expansion all over the world. Google has no geographical dependence because the technology of internet is widespread worldwide. An example of geographical power is that more than 115 countries use Google, many of which are not economically developed. Google’s social environment is global, meaning that is a Multilanguage ”society”. For this reason, Google’s services have been translated into numerous languages. Furthermore, it allows access to sites which may be inappropriate or appropriate. However in many countries there is a prohibition to them due to cultural and religion differences. (David, 2007, Morrow, 2008)

Technological

The technology is always advancing, so this phenomenon makes Google expand rapidly. For this reason, it has to be updated constantly in order for it to follow its revolution. New technology in computers systems may aid Google’s services to work faster and better, so it has to prevent its opponents from taking this new technological knowledge. Another advantage of technology for Google is that the costs are decreasing, while the quality of the services that it offers is improving and the innovation are strengthened. It also improves the speed of information, the ways of communication and transportation. These reasons help Google to expand and more important to survive. (David, 2007, Morrow, 2008)

Legal

The legal environment is an issue that concerns everyone who uses the Internet. Copyright is an issue that exists in legal environment because of the ability that third party persons and companies can copy pictures and steal information from others. As a result, Google has created a page with copyright information about what is legal and what is not. (David, 2007, Morrow, 2008)

Five Forces

As always analyze of five Porter forces play very important role for the study of business elements and contributes to develop the right strategy to be able to survive and become more competitive. (David, 2007, Morrow, 2008)

Entry Barriers

Regarding the search engines, they have accumulated a large amount of information on customer service. Therefore, Google updates its material, in order to compete with other online search engines. For a newly introduced company it is necessary to serve and meet its customers’ expectations and the services should be provided at high speeds with flexibility in search. When Google was established around 1998, there were other similar companies like Yahoo, AltaVista and Excite, which had big influence in the market place but Google achieved to dominate. The web environment of search engines is more enriched, compared with the past years and it’s more familiar for users. As a result, the entry of new firms is not such a big threat for existing companies, especially for Google. (Morrow, 2008)

Suppliers

The main suppliers of Google are advertisements of companies, which expect to be popular in the world, so this factor contributes to the direct profit. Therefore, the negotiating power of suppliers is relative low, because Google is the pioneer of searching services. Over the years, technology evolves rapidly and because of it, Google achieved to install new software in mobile phones. But in this case the negotiating power is very high, because there is other companies’ software, like Microsoft with more experience in the market place. (Morrow, 2008)

Competitors

The main target of Google is to be able to face the competitiveness and become dominant company in the world of search engines. The main source of income is based on advertisements, due to reliable information that is collected daily. Since 2007, Google noted an upward evolution with annual profit rate at 110%. The main competitors of the company are Microsoft and Yahoo which have significantly lower profit. For the achievement of their profits, trademarks like MSN and Live-search played very important role. The company’s high market share gives it the advantage to improve the quality of information and make the search easier. As a result, Google creates successful advertisements rapidly in comparison with its competitors. (David, 2007, Morrow, 2008)

Customers

Since 2007, almost entirely, the profits of Google come from advertisements. The strategy of the company is to obtain new and more advertisements, of which the profit is maximum 3%. So it accumulates the profit from many small advertisements. Many firms want to advertise themselves and users have the opportunity to find them through keywords. Then, the percent of profits increased, because it is considered as an extra service. This attracts many companies which results in Google buying power in low levels. (David, 2007, Morrow, 2008, 1999)

Substitutes

In recent years the world of Internet is the first option for the users, who search direct information. Due to the uniqueness and immediacy, there aren’t specific substitutes for data search. In order to Google to serve the users and become more competitive, with the help of some tools, classifies the data by date. The leading position of Google and the possible future entrance of competitors depend on the satisfaction of customers and shareholders. (David, 2007, Morrow, 2008, 1999)

Complementary

The complementary goods are directly connected with services of Google and depend on them as these are portable computers and mobile phones. Generally, it is an industry with restricted amount of complementary goods. (David, 2007, Morrow, 2008, 1999)

SWOT analysis

Strengths

• There is a wide range of functions offered such as Google docs, Google earth, Gmail, Google translator and Blackle, besides its main operation as a search engine.
• Good reputation and strong brand name
• Loyal customers
• Google has developed very well its “know how”,
• Google’s efficient and prompt results
• Pay high attention to the users
• Unique product-service
• Friendly working environment
• Does not distract its users by flooding the homepage with advertisements

Weaknesses

• The requested search does not always coordinate with the results
• You cannot always find the information that you want in the fullest extent
• The information is mostly in English
• Hackers create many dummy site with spam
• Whoever is interested in using Google for advertising purposes does not have a clear idea where it would be more profitable to place their advertisements as the cost or click charging is very confusing
• There is a lot of useless and invalid information

Opportunities

• Google can expand by merging
• Using higher value context on the web
• Can increase the internet usage
• Can local vendors advertisements on every local search
• It can provide more hand-held devices to capture a larger share of the market
• It can increase the advertising spending online

Threats

• There are a lot of competitors and rivals
• Censorship
• A lot of legal trials due to users invasion of privacy
• The confusing policy for advertisements may disappoint the potential clients and Google may start losing them
• If it decides to follow its competitor by changing it minimal user friendly interface it may lose a lot of its users
• Privacy issues regarding the contents ownership
• It can lose its brand loyalty if it merge with other large firms

(David, 2007, Thomson and Strickland, 1998)

FINANCIAL

Google is a company that has increasingly become popular since 2004. In recent years it has achieved to increase its incomes that helped it become a profitable company. Google’s revenue is 99% from advertisement, because the products that it ”sells” are free to use. According to the financial statement, Google is better than its main competitor, Yahoo because, it has 2.4 times more of its revenue. Additionally, Google is more profitable than Yahoo as it manages its debts better. In recent years, Google has slowed down the sales growth, income growth, assets growth, the profit Margin and the return of assets as we can see in table 1. However, it is still at a good level and it does not declare to be in a downward path, because it is still first in sales. This is a result of its steady growth, as know that no company can achieve an upward course. Google’s revenue is increasing annually, even if it is not at the same rate as previous years, however, it has never been less. (Morrow, 2009)

 

CONCLUSION

To sum up, throughout its progress, Google has kept its dominant position over its competitors in the information based services industry. Furthermore, it is very important to note that Google has not only been consistent when it comes to providing a product of the highest and quality, but is also constantly developing, adapting, but more significantly revolutionizing the industry. In addition, what makes Google’s product so unique in comparison to its competitors is the attention that it gives to consumer needs in order to provide a reliable and difficultly substituted product rather than focusing on maximizing its profit with every given chance which may compromise the quality of its search result; its product. Having analyzed the corporation’s internal and external environment it is evident that Google pays attention even to the smallest detail to ensure that it will be the leading company amongst the numerous other online search engines and has been able to create loyal customers that are constantly increasing.

SOURCES-BIBLIOGRAPHY

Morrow, B. (2009)”Internal Analysis of Google Inc.”, 22 February, 2009. Available at: http://www.benmorrow.info/research/internal-analysis-of-google-inc [Accessed: 5 January, 2011]

Morrow, B. (2008) “External Analysis of Google Inc.”, 15 October, 2008. Available at: http://www.benmorrow.info/research/external-analysis-of-google-inc [Accessed: 5 January, 2011]

Google (2011) “Company Overview” Corporate Information.

Christodoulou, I.P. (2010) Strategy – Strategic Management Perspectives. [PowerPoint slides] Lecture handouts. University of Hertfordshire.22 December, 2010

Keller, K.L., (2008) Strategic Brand Management. A European Perspective. 1st edn. England: Pearson Education Limited

David, F.R., (2007) Strategic Management Concepts. 11th Ed. Upper Saddle River, New Jersey: Pearson Prentice Hall

Thompson, A. A. Jr and Strickland, A. J III (1998) Strategic Management Concepts and Cases. 10th Ed. USA: Irwin/McGraw Hill (International Edition)