Google Competitive Advantages Assessment

The Company Google (Alphabet Inc.)

Internal Strengths and Weaknesses

Strengths

i. Brand reputation: Google happens to be a well-known brand that is generally well regarded by various stakeholders including, but not limited to, customers. In essence, as one of the most recognized brands in the world, Google is to a large extent considered a market leader in its space – which could help in efforts to promote customer loyalty.

ii. Financial stability: Google’s total revenue, as has been indicated in the financial analysis section, has been on an upward trend over the last five years. This has allowed the company to invest in various systems and features that further enhance its ability to satisfy customer needs.

Weaknesses

i. Overreliance on advertising revenues: Google derives a huge chunk of its revenues from advertising. As a matter of fact, 81.3% of the company’s revenues in the year 2021 could be traced back to advertising. It is important to note that if this particular source of revenue is disrupted for some reason, the company’s stability could be greatly impacted.

ii. Unaddressed employee concerns: According to Elias (2022) various surveys indicate that “Google employees are becoming unhappy with pay, promotions, and execution”. This is a pointer to internal issues (i.e. in relation to compensation and career advancement) that ought to be addressed if the company is to continue being effective in its operations going forward.

Financial Analysis

Table 1 below lists a number of metrics that would come in handy in the evaluation of Google’s performance. More specifically, the following items have been captured: revenues, costs, profits, return on capital, and debt ratio.

Metric

Revenue

Total costs and expenses

Net profit

ROE

Debt ratio

Table 1

NB: All figures in millions except financial ratios

Google’s performance over the last 5 years has been exceptional – having essentially doubled its revenues over the said period of time. Even more impressive has been the net profit growth over the last 5 years under consideration – with the company being able to increase the net profit figure by 500.48%. The ability of Google to generate profits using shareholder funds has also improver within the 5-year period, as evidenced by the ROI ratios computed in Table 1. However, the company needs to keep its costs and expenses in check as they have ballooned over the last 5 years – increasing by 111.3%. To assess the long-term solvency of Google, there was also need to compute its debt ratio. Although the company’s debt ratio has increased (from 0.23 in 2017 to 0.30 in 2021), the said ratio is still low and within an ideal range (i.e. below 1). Thus, it cannot be considered to be highly leveraged. This is more so the case given that as Fibozzi and Drake (2009) indicate, “companies with higher levels of liabilities compared with assets are considered highly leveraged and more risky for lenders” (119).

Competitive Advantages Assessment: VRIO Model

Competitive advantages

Value (V)

Rarity (R)

Imitability (I)

Organization (O)

Market position (market leader)

Customer experience

Brand image

Table 2

When it comes to market position, there is no doubt that Google has the lion’s share of the search engine market. It is important to note that given that only 10% of search engine queries are handled by Google’s competitors, the company effectively dominates this particular market.

With regard to customer experience, it is important to note that Google has over the past few years released various product updates meant to ensure that customers are served in an effective and appropriate manner and have positive feelings and perceptions about the brand. As the company points out in its latest Annual Statement, “if we do not continue to innovate and provide products and services that are useful to users, customers, and other partners, we may not remain competitive, which could harm our business and operating results” (Securities and Exchange Commission - SEC, 2021, p. 10).