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company is known for many different products and services, according to the annual report almost all its income derives from online advertising, so that shall be considered to be the company's business. The online advertising business is highly competitive, with firms like Yahoo, Microsoft, Apple and Facebook all being important players.
The online advertising industry operates, more or less, like an oligopoly. There are a handful of major companies that dominate the industry. Essentially, online advertising works much like conventional advertising. The companies in the industry must deliver an audience to buyers, who purchase advertising space. Google does this through its own family of websites, of which several are among the most-used sites on the web, and through partnership with third-party websites that use Google as their advertising partner.
The industry is growing, although the pace of growth is beginning to slow. Over the past twenty years, the Internet has come to be a dominant force is communications in the world, and today is used by billions of people for information and communication. Thus, there are tremendous opportunities for volume in online advertising. In any advertising business, eyeballs are important and the companies that can deliver that traffic will be the ones that generate the most money, since the cost of any one ad is very low. The business therefore relies on a high-volume, low-margin strategy. Within that strategy, firms attempt to differentiate on the basis of being able to deliver a specific audience, and on the ability to deliver more information about the audience. That information is then used by advertisers to better target their ads.
Growth in the industry is a function of two things -- the state of the economy and the amount of time people spend online. The more people there are on the Internet, and the more time they spend on there, creates opportunities for companies in the online advertising business. In order to take advantage of those opportunities, firms in the industry need to have customers. The customers are the advertisers, and their willingness to spend is often tied to the state of the economy overall. Firms not only must decide where they want to spend their advertising dollars -- there are many media forms available -- but they must also set their advertising budgets, and these tend to fluctuate with the business cycle.
While Google cannot control the demand for its service, it can control the supply. Supply in this case is manufactured by creating an audience. Where a television station creates an audience by airing shows people want to watch, the Internet is not much different. Google has created a large number of sites -- national sites, search engines of different types, blog and entertainment sites -- and these attract users. The better quality the sites are, the more users they will attract. For example, in the search engine business Google was able to become dominant through superior technology. Its search algorithms delivered better results than those of competing search engines -- and they still do. Because of this, Google has a leading market share in most countries of the world -- China being a notable exception. Thus, a key success factor is the ability of the company to draw in users to its sites, where it has the most control over the content and therefore the ad targeting.
Another key success factor is to be able to translate this model to other websites. This is a key advantage that Google has over some of its competitors like Apple and Facebook, who mostly sell on their own sites. Google has effectively syndicated its advertising by being able to communicate to its customers (advertisers) the audience of partner sites. For the partner sites, Google splits the revenue. Thus, Google is able to not only leverage its own audience, but the audience of other sites around the Internet.
Google has other major competencies, but these are not key success factors in its industry. There is the possibility that the Android operating system -- for which Google makes very little -- can prove another success factor by driving more Internet users to Google's sites and partners. However, the other successes that Google has enjoyed with respect to innovation are probably not critical to its revenues or profits.
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