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In 1996 two computer science PhD students at Stanford University, Sergey Brin and Larry Page, were wondering how they could sort through the massive amount of information that was starting to appear on the Web to find specific and useful information on a topic. Although there were several different technologies, or search engines, available to search the Web for information, none of them seemed particularly useful to Brin and Page because they failed to distinguish between useful and trivial Web sites. Brin and Page decided to build a search engine that not only would examine the words on Web pages and then index them as other search engines did, but also would look at how and where these words were being used and at the number of other Web sites linked to a page. The goal was to have the search engine return a list of Web pages with the most useful appearing at the top.
The name “Google” originated from a misspelling of “googol” which refers to the number represented by a 1 followed by one-hundred zeros. Having found its way increasingly into everyday language, the verb, “google,” was added to the Oxford English Dictionary in 2006, meaning, “to use the Google search engine to obtain information on the Internet.”
By December 1998 the beta version of Google’s search engine had been up and running at the Web for months, answering over 10,000 search queries a day. From that point on growth was exponential. By December 2000 Google’s index included more than 1.3 billion Web pages, and the company was answering some 60 million search queries a day. By 2004 the number of Web pages indexed by Google exceeded 4 billion, and the search engine was handling more than 300 million queries a day. Google’s technology quickly became pervasive. Soon most major Web portals were using Google’s search engine technology, including AOL. Yahoo also signed an agreement to make Google its default search provider, which helped make Google the largest search engine on the Web. Estimates suggested that in 2003 some 75 percent of Internet searches were made using Google.
What was most impressive about Google, however, was that unlike many other dot-com businesses of the 1990s, Google found a way to make money. Google generated revenue from only two sources: (1) the licensing fees it charged to supply search capabilities to corporations, other Internet sites, and wireless telephone companies, and (2) the advertising fees it charged for providing highly targeted text-only sponsor links adjacent to its search results.
The Google search engine attracted a loyal following among the growing number of Internet users, who liked its simple design. In 2000, Google began selling advertisements associated with search keywords, which provided the company with an additional revenue source beyond fees for licensing its search appliance to other Web sites. To make money Google sells to advertisers the words that people put in when they search for something on the Web. Thus means that whoever bids the most for a particular term, say digital cameras, gets their link put at the top of a Google-generated list. Google distinguishes between independent search results and those that are paid for by listing “sponsored links” on its page. However, sponsors do not pay Google unless a user clicks through to them from a Google-generated link.
The ads were text-based to maintain an uncluttered page design and to maximize page loading speed. Keywords were sold based on a combination of price bid and click-throughs, with bidding starting at $.05 per click. Advertisers don’t just pay a set rate, or even a cost per thousand viewers. They bid on the search term. The more an advertiser is willing to pay, the higher its ad will be positioned. But if the ad doesn’t get clicks, its rank will decline over time, regardless of how much has been bid. If an ad is persistently irrelevant, Google will remove it: It’s not working for the advertiser, it’s not serving users, and it’s taking up server capacity. Google understands that its two most important assets are the attention and trust of its users. If it takes too long to deliver results or an additional word of text on the home page is too distracting, Google risks losing people’s attention. If the search results are lousy, or if they are compromised by advertising, it risks losing people’s trust. Attention and trust are sacrosanct. Google pursues a seemingly gratuitous quest for speed: Four years ago, the average search took approximately 3 seconds. Now it’s down to about 0.2 seconds. And since 0.2 is more than zero, it’s not quite fast enough.
Page and Brin insisted that the company would only sell discreet text ads placed near search results and never mix paid keyword-based ads with legitimate search results even though the practice was standard among search engine companies. Also, Google would not place banner ads on its Web site, now would it sell pop-up ads.
While many of its dot-com rivals failed in the new Internet marketplace, Google quietly rose in stature while generating revenue. In 2003 the company made $967 million in revenues and $105 million in net profits. In 2004 revenues surged to $3.19 billion and net income to $399 million.
Google – Founded by Geeks and Run by Geeks
Google is an organisation founded by geeks and run by geeks. According to Stephen Arnold, Google’s programmers are 50%-100% more productive compared to programmers working for their competitors. He based this theory on Google’s competitors having to spend up to four times as much just to keep up.
It is a collection of 650 really smart people who are almost frighteningly single-minded. “These are people who think they are creating something that’s the best in the world,” says Peter Norvig, a Google engineering director. “And that product is changing people’s lives.”
Geeks are different from the rest of us, so it’s no surprise that they’ve created a different sort of company. Google is, in fact, their dream house. It also happens to be among the best-run companies in the technology sector. At a moment when much of business has resigned itself to the pursuit of sameness and safety, Google proposes an almost joyous antidote to mediocrity, a model for smart innovation in challenging times.
Google spends more time on hiring than on anything else. It knows this because, like any bunch of obsessive engineers, it keeps track. It says that it gets 1,500 résumés a day from wanna-be Googlers. Between screening, interviewing, and assessing, it invested 87 Google people-hours in each of the 300 or so people that it hired in 2002.
Google hires two sorts of engineers, both aimed at encouraging the art of fast failure. First, it looks for young risk takers. “We look for smart,” says Wayne Rosing, who heads Google’s engineering ranks. “Smart as in, do they do something weird outside of work, something off the beaten path? That translates into people who have no fear of trying difficult projects and going outside the bounds of what they know.”
But Google also hires stars, PhDs from top computer-science programs and research labs. “It has continually managed to hire 90% of the best search-engine people in the world,” says Brian Davison, a Lehigh University assistant professor and a top search expert himself. The PhDs are Google’s id. They are the people who know enough to shoot holes in ideas before they go too far — to make the failures happen faster.
Google developed a decentralized management schema where employees report directly to multiple managers and team project leaders. This allows for the responsibility of the technology department to be shared amongst multiple senior level engineers and removes the need for a singular department head to oversee the activities of the department. This is a unique approach from the standard management style.
The challenge is negotiating the tension between risk and caution. When Rosing started at Google in 2001, “we had management in engineering. And the structure was tending to tell people, No, you can’t do that.” So Google got rid of the managers. Now most engineers work in teams of three, with project leadership rotating among team members. If something isn’t right, even if it’s in a product that has already gone public, teams fix it without asking anyone.
“For a while,” Rosing says, “I had 160 direct reports. No managers. It worked because the teams knew what they had to do. That set a cultural bit in people’s heads: You are the boss. Don’t wait to take the hill. Don’t wait to be managed.” And if you fail, fine. On to the next idea. “There’s faith here in the ability of smart, well-motivated people to do the right thing,” Rosing says.
Google doesn’t market itself in the traditional sense. Instead, it observes, and it listens. It obsesses over search-traffic figures, and it reads its email. In fact, 10 full-time employees do nothing but read emails from users, distributing them to the appropriate colleagues or responding to them themselves. “Nearly everyone has access to user feedback,” says Monika Henzinger, Google’s director of research. “We all know what the problem areas are, where users are complaining.”
Google focuses relentlessly on the quality of the experience. Make it easy. Make it fast. Make it work. And attack everything that gets in the way of perfection.
How does Google keep innovating?
Google also understands the capacity of the Web to leverage expertise. Its product-engineering effort is more like an ongoing, all-hands discussion. The site features about 10 technologies in development, many of which may never be products per se. They are there because Google wants to see how people react. It wants feedback and ideas. Having people in on the game who know a lot of stuff tells you earlier whether good ideas are good ideas that will actually work.
One big factor is the company’s willingness to fail. Google engineers are free to experiment with new features and new services and free to do so in public. The company frequently posts early versions of new features on the site and waits for its users to react. “We can’t predict exactly what will happen,” says senior engineer Nelson Minar.
Frequently, new Google enhancements or products appear in its inventory. Google Labs, the experimental section of Google.com, helps Google maximize its relationships with its users by including them in the beta development, design and testing stages of new products and enhancements of already existing ones.
Google’s Competitive Position and Strategy to Sustain Growth
Google’s ability to sustain its strong position among Internet search companies was a function of its ability maintains strong relationships with Internet users, advertisers, and Web sites. Google has a distinctive technology advantage over Microsoft, eBay, Amazon, Yahoo. Google utilizes custom high-performance systems which are cost efficient because they can scale to extreme workloads. This hardware allows for a huge cost advantage over its competitors.
In 2005, Internet users searching for information went to Google more often than to any other site with search capabilities. There was nothing that would prevent Internet users from abandoning Google to use a better search technology. However, the development of a better search engine by a rival could lead to rapid erosion of advertising revenues for Google. Google management believed its primary competitors were Yahoo! and Microsoft.
In August 2004 Google went public, raising over $1.5 billion. With no debt and flush with cash, the company looked set to build on its lead in the search engine business. However, competitors were not sitting on the sidelines. In 2003 Yahoo! purchased a rival search engine company. Overture Services and replaced Google as the search engine on its site with a proprietary search engoine based on Overture’s technology. Microsoft too seems to have its sights set on Google. Microsoft is reportedly working on its own search engine technology, which it plans to integrate with its software.
In February 2003, Google acquired Pyra Labs, owner of Blogger, a pioneering and leading web log hosting website. Some analysts considered the acquisition inconsistent with Google’s business model. However, the acquisition secured the company’s ability to use information gleaned from blog postings to improve the speed and relevance of articles contained in a companion product to the search engine, Google News. Google also purchased YouTube, JotSpot (a company that helped pioneer the market for collaborative, web-based business software), Gapminder’s Trendalyzer software (a company that specializes in developing information technology for provision of free statistics in new visual and animated), Adscape Media (a small in-game advertising company). In 2007, Google also acquired PeakStream Technologies.
In 2004, Google became more involved in the Chinese market when it acquired a 2.6 percent stake in Baidu – the number one search engine in China. Google believed it was essential to develop a local presence in China if it were to aggressively pursue search-based advertising customers in that market since the Chinese language was so complex. In late 2005, Google was moving forward with its strategy in China by recruiting employees for an office located in China, developing a separate brand name for the Chinese market, and launching a Chinese “.cn” site. Google management also opened an operation center in Brazil and Mexico in late 2005 to improve sales and services to Latin American advertisers.
While the company’s primary market is in the web content arena, Google has also recently began to experiment with other markets, such as radio and print publications. On January 17, 2006, Google announced that it had purchased the radio advertising company dMarc, which provides an automated system that allows companies to advertise on the radio. This will allow Google to combine two advertising media-the Internet and radio-with Google’s ability to laser-focus on the tastes of consumers. Google has also begun an experiment in selling advertisements from its advertisers in offline newspapers and magazines, with select advertisements in the Chicago Sun-Times. They have been filling unsold space in the newspaper that would have normally been used for in-house advertisements.
Over the course of the past decade, Google has become quite well known for its corporate culture and innovative, clean products, and has had a major impact on online culture.
What are the sources of Google’s competitive advantage? (In your answer identify and explain Google’s distinctive competencies)
What value does Google create for customers and advertisers?
Apply the four building blocks of competitive advantage to Google. Analyse each factor by providing detailed examples from the case.
What business-level strategy is Google pursuing? (Identify the strategy and justify your answer).
What corporate-level strategy and international strategy has Google implemented? (Identify the relevant strategies and justify your answer).
1. What are the sources of Google’s competitive advantage? (In your answer identify and explain Google’s distinctive competencies)
Ans-First we need to define what competitive advantage is. Competitive advantage
Can be defined as the advantage a firm has over other firms with respect to product offerings, Cost structure, distribution and customer support. This allows the firm to generate high revenues or margins as well as larger customer base than it’s competitors.
Competitive advantages are mainly of two types.1) Comparative advantage 2) Differential advantage.
1) Comparative advantage- Comparative advantage is also called as cost advantage. This is the organization’s ability to produce goods or services at a lower cost than its competitor’s price. 2) Differential advantage- Differential advantage is the firm’s ability to differ from products or services from it’s competitors and are perceived as better than it’s competitors.
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