Market Share and Smartphone

Google Case Study Analysis

Google Inc. is one of the major internet companies worldwide. The multinational firm is predominantly involved in providing online advertising and search engine services. Other products and services provided by the firm include cloud computing services, enterprise services, mobile payment services, as well as consumer services and electronics. The provision of consumer electronics under the Nexus brand represents one of the firm's latest expansions of its product portfolio, largely seen as a move to reduce its reliance on online advertising revenue. With reference to the relevant tools and frameworks, this paper provides a strategic analysis of Google, particularly in relation to its consumer electronics segment. First, an analysis of the internal and external environment is provided. Next, attention is paid to the firm's current strategy diamond. Finally, strategic recommendations based on the analysis are provided.

Internal Environment

The VRINE model provides an ideal framework for examining the firm's internal environment (Carpenter and Sanders, 2009). As a firm, Google has been in operation since 1998. In a little less than two decades, the firm has established itself as one of the most popular and valuable brands across the globe. Indeed, the firm's worldwide popularity makes it not require significant advertising. The firm has experienced rapid growth thanks to effective and competent leadership. One of the major sources of competitive advantage for the firm is its commitment to innovation and creativity. With its innovation-oriented culture, Google has in fact been termed as one of the most innovative technology companies in the world. The firm's proprietary products have taken the internet landscape to a whole new level. This provides a valuable source of competitive advantage in the highly competitive internet marketplace, along with heavy research and development (R&D) spending and impressive financial performance.

The firm's commitment to innovation and creativity has been evident in its recent product line Nexus, which mainly includes smartphones and tablets designed and developed in partnership with original equipment manufacturers (OEMs). The Nexus brand was replaced by Pixel in 2016. Pixel devices come with fairly rare features, notably the Android operating system (OS), which powers approximately four in every five smartphones in the world (International Data Corporation [IDC], 2016a). Some of the major innovative features supported by the OS include Google Maps, YouTube, Play Store, Google Drive, Gmail, Chrome, and Google Docs. Though the Android OS is common in other smartphone brands, Nexus has unique advantages compared to other Android smartphones. For instance, Nexus only supports Google applications, meaning no junk or illegitimate applications. Also, Nexus devices are usually the first to receive Android updates, giving them an upper hand. Other advantages include a simple user interface, developer friendliness, and greater personalisation. From a hardware perspective, Pixel devices boasts amazing features such as fast processing speed, a huge display, as well as an appealing design. Google provides these features at a relatively affordable price. Pixel smartphones are fairly cheap compared to Apple and Samsung smartphones.

In spite of the above rare capabilities, Pixel devices represent an insignificant share of the global smartphone market. The market is still dominated by Samsung, Apple, Huawei, Sony, HTC, and LG (IDC, 2016b); with Google's Pixel accounting for less than 0.02% of the market share as of 2016 (Spence, 2016). Indeed, Google remains predominantly reliant on online advertising, which accounts for over 90% of its revenue (Alphabet Inc., 2015). This is a major weakness for the firm as far as revenue diversification is concerned. There is still a long way to go before Pixel becomes an established brand in the smartphone market. The challenge of market share is further compounded by the threat of imitation and substitution. In the last few decades, numerous smartphone brands have infiltrated the market, in large part due to the ease of imitation of consumer electronics. Whereas Google boasts a strong patent portfolio, the possibility of competitors imitating their products cannot be overlooked. In a market where attaining significant market share is an enormous challenge, imitation can be disadvantageous to the firm (Barney, 1995).

External Environment

The external environment comprises two elements: the micro environment and the macro environment (Carpenter and Sanders, 2009). The micro environment essentially represents the industry or competitive environment, which is analysed on the basis of Porter's five forces model (Porter, 2008). The smartphone market represents a rigorously competitive landscape. Indeed, the threat of rivalry is strong. The market is dominated by powerful brands such as Apple, Samsung, Huawei, Xiaomi, LG, Sony, HTC, Lenovo, Blackberry, and Nokia. These brands have been in the smartphone business for much longer compared to Google, which is a more recent entrant. A major advantage of these rivals over Google is that smartphones comprise their core business, unlike Google whose core business is the internet. They boast superior engineering capabilities which Google is yet to match.

High competitive rivalry often means a weak threat of new entrants (Hill and Jones, 2012). Most of Google's rivals in the smartphone segment, notably Apple and Samsung, have established robust market share and brand loyalty, making it quite difficult for new entrants to successfully enter the market. The difficulty of entering the market is further compounded by the huge financial, R&D, and supply chain capabilities required to thrive in the industry. A weak threat of new entrants is an advantage for Google. The threat of substitutes in the smartphone industry is also low. Though tablets, laptops, digital cameras, and personal digital assistants (PDAs) may be considered substitutes, they are yet to match the functionalities offered by smartphones, making it difficult for them to replace smartphones.

The bargaining power of buyers is strong. With numerous smartphone brands in the market with almost similar attributes, buyers have several options to choose from. They can readily switch to options that offer the greatest satisfaction in terms of aspects like OS, user friendliness, camera capabilities, size, weight, carrier compatibility, price, and so on. Though the bargaining power of buyers is low, the bargaining power of suppliers is moderate. On one hand, some smartphone manufacturers supply inputs by themselves. Google, for instance, owns the Android OS, a major input in the smartphone market. This dilutes the power of software vendors. On the other hand, however, smartphone manufacturers rely on other entities for the supply of components such as memory chips, processors, cameras, covers, earphones, chargers, and batteries. Though some manufacturers such as Samsung own their inputs, Google depends on suppliers for its components. Component suppliers may have significant bargaining power as they serve a broad clientele.

Business operations are affected by not only the industry environment, but also the larger macro environment as described in the PESTEL model (Carpenter and Sanders, 2009). Political and legal factors are particularly important as far as the smartphone market is concerned. Though the markets in which Google currently markets its Pixel brand are fairly politically stable, it is important to note that political instability may hinder business operations, leading to loss of revenue and profit. Also, laws and regulations relating to aspects such as intellectual property, privacy, telecommunications, and consumer safety may be detrimental to the firm as they may lead to expensive lawsuits, tarnished reputation, and reduced usability of smartphones.

Economic and social factors also have important implications for the smartphone industry. Unfavourable economic events such as recession, for instance, can increase operating costs and weaken consumers' purchasing power, consequently slowing down smartphone purchases. Conversely, favourable economic events such as economic growth can increase consumers' purchasing power. Emerging markets are an ideal example. With impressive economic growth in the last three decades or so, emerging markets present a significant growth opportunity for smartphone vendors due to the growth of the middle class (Dobberstein, Narasimhan and Aggarwal, 2013). Social factors affect smartphone vendors in the sense that local factors have to be considered in the design and development of smartphones. This explains why most smartphones provide options for local languages. The increased popularity of social media presents further opportunities for Google and other smartphone firms as it has increased the demand for smartphones.

Environmental concerns are crucial for the consumer electronics industry due to increased attention to environmental sustainability. It has become important for consumer electronics firms to focus more on eco-friendly materials, recycling, sustainable packaging, carbon emissions, and energy efficiency. Inattention to environmental issues can significantly cost Google in today's ever more environmentally conscious world.

Technological factors are perhaps the most influential forces in the smartphone industry. Indeed, the ability to thrive in the smartphone market is in large part dependent on technological capabilities. Smartphones have a short lifecycle, compelling smartphone firms to remain innovative. They have to constantly introduce devices with more advanced capabilities such as water resistance, high definition (HD) sensitivity, wireless charging, higher camera resolution, and so on. Other technological trends driving the smartphone market include cloud computing, growth of the apps market, as well as greater and faster internet connectivity across the globe (Dobberstein, Narasimhan and Aggarwal, 2013).

Current Strategy Diamond

The strategy diamond provides five elements through which an organisation's strategy can be examined: arenas, vehicles, differentiators, staging, and economic logic (Carpenter and Sanders, 2009). For success, the five elements ought to be aligned with one another.

Arenas: Google's Pixel is a premium smartphone marketed worldwide, though mainly in developed markets. Like most smartphone vendors, Google distributes its smartphones to the end consumer through mobile phone carriers such as AT&T and Verizon. The devices can as well be obtained via retailers.

Vehicles: Google has historically grown through partnerships and acquisitions. Partnerships and acquisitions offer faster options for growth compared to other corporate strategies (Johnson, Scholes and Whittington, 2010). In the firm's close to two decades of operation, it has made over 150 acquisitions and partnered with several entities. When Google initially ventured into the smartphone market in 2010, it partnered with OEMs such as Huawei, LG, Asus, and HTC. The OEMs handled part of development and most of its manufacturing, while Google focused on design, development, marketing, and support. The firm, however, adopted a different strategy in 2016 upon replacing the Nexus product line with Pixel. The company now directly manages component procurement, supply chain, as well as distribution and inventory (Team, 2016). This strategy is expected to be a game changer in the firm's position in the stiffly competitive smartphone market.

Staging: As mentioned earlier, the smartphone market is largely characterised by shorter product lifecycles, meaning smartphone manufacturers must move with speed. They must constantly improve their offerings. Since the introduction of the first Nexus in 2010, several more advanced versions have followed, with a new version being introduced every year. In October 2016, the latest versions of the product line were announced, though under a different brand (Pixel and Pixel XL).

Differentiators: Google has differentiated its smartphones from the competition by focusing on user experience, personalisation, development support, elimination of third party applications. Though the smartphones are supported by its own Android OS, they have an advantage over other Android smartphones in the sense that they get updates first. Besides user friendliness, Google's smartphones offer a stylistic design with three colour varieties, a large display with 1080x1920 pixel resolution, 4 gigabytes (GB) random access memory (RAM), up to 128 GB external storage, 2,770 mAH battery life, as well as a 12-megapixel rear camera. These unmatched specifications come at a fairly affordable cost compared to Apple's iPhone and Samsung's Galaxy Note and S. series.

Economic Logic: The unique attributes of the Pixel give it considerable competitive advantage in the marketplace, particularly compared with its major rivals, Apple's iPhone and Samsung Galaxy Note and S. series. Indeed, the smartphone is marketed as a high-end brand, specifically aimed at Apple's and Samsung's high-end users. With the Pixel and Pixel XL retailing for $650 and $769, respectively, Pixel's price points actually compare very closely with that of Apple and Samsung. Team (2016) contends that given the premium pricing, the Pixel product line is likely to be profitable for Google if sufficient volumes are sold. Nonetheless, whereas the replacement of the Nexus brand with Pixel represents a vital step in Google's development of the smartphone market, only time will tell whether the device will be a significant money maker for the firm given the tough competition it faces from its rivals.

Recommendations

On the whole, Pixel is a great product considering its software and hardware specifications. The device has what it takes to compete in the smartphone market. Nonetheless, competition remains intense given the dominance of Apple, Samsung, as well as other smartphone producers. Accordingly, the Pixel brand is yet to gain a significant share of the market. Without more aggression, it is unlikely that Google will thrive in the market. The good news is that the firm has the resources and capabilities required to pursue growth. It has adequate financial muscle, competent leadership and personnel, strong R&D capabilities, and valuable strategic partnerships.

Two options are available for Google as far as the growth of its smartphone business is concerned: market penetration, and market development. Market penetration essentially entails expanding the present offering to the present market (Hill and Jones, 2012). In other words, the firm focuses on increasing its share of the market in the prevailing market segments. This is often achieved through modest product improvements, acquisition, price reduction, increased production and distribution, loyalty programs, as well as greater promotional activity (Johnson, Scholes and Whittington, 2010). For Pixel's insignificant market share to increase, these activities are important. The firm ought to sell more products, establish more distribution channels, and increase marketing activity. For instance, by introducing or paying greater attention to online retailing, the firm can sell more. Also, the firm can reach new customers by advertising more. Advertising is an area the firm should particularly pay greater attention to as it has historically not been a big spender on advertising due to its immense brand popularity. If Pixel is to achieve greater success in the marketplace, the firm must take advantage of both offline and online channels. Indeed, some of the firm's other products such as YouTube give it considerable advantage from a marketing perspective.