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Introduction and Description of the Company
Figure 1.1 Revenue and Net Income Growth
Google is a highly successful Internet company that makes most of its money through online advertising. It has been able to achieve this success through a combination of leadership and culture. The company's many strengths are in general aligned with the opportunities that exist in the marketplace. As a result, Google has the opportunity to pursue most of its opportunities. The most recommended opportunity to pursue is to take the Android operating system and apply it to the PC industry. It is also recommended that Google addresses the threats that it faces in the political environment, both domestically and in China. It can do this by using its financial clout but also it will need to develop new capabilities in order to effectively manage the political environment.
Introduction and Description of the Company
Google is the owner of several of the world's top twenty websites, and the number one site in the world, Google.com (Alexa, 2012). The company has a number of different businesses. Its largest segment is its advertising business, operating systems, and other Internet software (2011 Form 10-K). The company describes its business as that of a "technology leader focused on improving the ways people connect with information." Google's stated mission statement is "to organize the world's information and make it universally accessible and useful" (Google.com, 2012). The company believes that if it delivers what the end user wants then "all else will follow."
By appealing to end users, Google is able to draw massive amounts of traffic to its web properties, and this in turn drives the company's core business. Users searching for things on the Internet do not pay Google, but their data is collected and used to help Google sell ads. The advertising business is the primary business of Google, and it contributed $36.5 billion of Google's $37.9 billion in revenues for the 2011 fiscal year (Google 2011 Form 10-K). Advertising, therefore, contributes 96.3% of all revenues. The other businesses, including the industry-leading Chrome browser and Android mobile operating system, are not significant revenue contributors to Google.
Google is a relatively young company, having started in 1998, and it is still in the growth stage of the business life cycle in online advertising. In its other businesses, Google is either in the infancy or growth stages of the life cycle. Internet traffic is still growing and the online advertising business remains subject to considerable innovation, much of it the result of Google's efforts. In a fast-paced and competitive industry, Google has always relied on innovation to drive its growth. The company offers a high level of service with its advertising business, and aims to deliver superior results for its advertisers in terms of both the quantity and quality of the eyeballs the advertisers will reach. Google also uses innovation to open up new business opportunities, and this innovation pipeline has put the company at the fore of many businesses. While it has yet to truly capitalize on the popularity of Android or Chrome, for example, the company is building market share in those areas and using those products to make its advertising business more effective, creating indirect revenue growth from its innovation. It has become a more innovative advertiser than rival Yahoo, which has seen its revenues and market share decrease in the past few years (Womack, 2011). Google still faces emerging threats from new advertising heavyweights like Facebook, which has seen its revenues grow rapidly (MSN Moneycentral, 2012). Google's innovation capabilities have also allowed it to gain share rapidly with Android, and it now dominates that space (Perez, 2012).
Google's organizational structure is based primarily on function, with product groupings taking a secondary role. The key functions at Google are Legal, Business Development, Knowledge, Communications People Operations, and Engineering. Product-based divisions include Advertising, Chrome and Apps, Google.org, Mobile and Digital Content, and Geo and Commerce. The most interesting thing about the organizational structure at Google is that the advertising business is subordinated to other aspects of the company, and is a product group on a par with many other product groups. Normally, a product group that constitutes 96% of the company's revenues would be given primacy in the organizational structure. This interesting quirk in the organizational structure highlights the unique approach that Google takes to its business -- knowledge and innovation are the primary objectives and the advertising business is basically a way for Google to finance its other endeavors.
Google's governance structure is designed to support the needs of the organization. There are three internal members of the board, and the remaining members come from a variety of disciplines. One of the company's early venture capitalists still has a seat on the board, as well as executives from Google's acquisitions over the years. Of some concern from governance perspective, however, is the lack of financial expertise on the company's board. It is generally recommended that a board should have experiences financial professionals to ensure adequate oversight of the company's financial activities and adherence to accounting standards. Google should adjust its board in order to ensure that there is more financial capability on its board (Uzun, Szewczyk & Varma, 2003).
Porter's model of the competitive forces in an industry helps to outline how attractive an industry is. The five forces are the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, the threat of substitutes and the intensity of rivalry within the industry. The most important industry for Google to understand these dynamics is the online advertising industry, since this is where Google draws almost all of its income from. The key inputs to this industry are the information that Google processes and the labor that Google uses to create its algorithms and sell its ads. The company does not pay anything to the end users (consumers) whose Internet searching provides the data that Google uses to target its ads. Moreover, there is no call from consumers to be compensated for this input -- they receive valuable information from Google in exchange. This information is derived from Google's efforts to gather the world's information and make it available. The company does this with top technical staff who develop the algorithms and other programs that allow for the development of the various Google sites and programs that feed into its advertising business. Labor has high bargaining power in this industry and Google wastes no effort or expense in making itself one of the most attractive companies in the business. Google is a top recruiter of talent but faces stiff competition from a variety of other leading technology firms in the area. All told, the bargaining power of suppliers is moderate -- Google only pays for talent, but it does not pay for the information it processes.
The bargaining power of buyers is moderate as well. Advertisers have a high level of information about their target markets and they will typically perform a cost-benefit analysis on any major advertising platform they are investigating. Google must not only be as well-informed as its customers in order to compete in this industry, but it needs to choose between offering superior results or lower rates than its competition. In order to avoid the bargaining power of buyers lowering the company's revenues Google relies on offering superior targeting of consumers. Google addresses the bargaining power of buyers directly by ensuring that it has the best service in the marketplace, so that it offers a superior cost-benefit equation to the buyers.
The threat of new entrants is moderate. Google is growing its share of search but any website that has a high level of traffic is a threat to make a splash in the business. Microsoft entered search with an eye to growing its advertising business and has made inroads with Bing, though more against Yahoo than against Google. However, such a well-financed competitor can continue to work on offering a superior service and eventually become a serious threat to Google. Arguably, the biggest threat to Google right now is Facebook, which is rapidly leveraging its high traffic level to grow its online advertising business. This company is only a few years old and only went public to raise additional financing in 2012. The rapid rise of Facebook mirrors that of Google. The rapid pace of change in the Internet business means that there is a possibility that every few years a new major competitor will emerge in the same way that both Google and Facebook did.
The threat of substitution is low. Ten years ago, it could be argued that advertisers would be willing to substitute offline advertising for online, but that is not the case any longer. Online advertising has become a mainstream part of the advertising industry. It is not viewed as an alternative to offline media, but a complement…[continue]
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