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Running head: GOOGLE CASE STUDY ANALYSIS

Google Strategy Case Study Analysis Tara Looie MBA 8800 Business Strategy

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GOOGLE CASE STUDY ANALYSIS

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Google Strategy Case Study Analysis Google Inc. was founded in 1998 by Page and Sergey Brin. The company is a headquartered in Mountain View, California. It is a technology company in internet content and information industry which builds products and provides services to organize information. This industry has an aggressive growth of stock market. The company offers a wide variety of products such as Google search engine, AdWords, AdSense, Double Click Ad Exchange, and AdMob. Google Inc. also offers YouTube for video, Android; a mobile software platform, hardware products such as Chromebook, Chrome OS device, Chrome Cast, Google Drive and Nexus Devices. In addition, the company provides Google Maps, Google Apps for Gmail, Docs, Google + for sharing things online with people. The company recently expands its production to Google Cloud Storage and Drives, Google Big Query for real time analytics, Google Glass and Google fiber (Yahoo Finance, 2015). SOWT Analysis Google’s business strategy is simpler that we think. It’s “Get people to use the internet more.” This means that the more time people spend on the internet, the more time they will engage in revenue generating activities such as viewing and clicking display ads and performing searches (Dickey, 2013). This is the main reason Google is focused on improving internet access and speed and make its goal to shortening the distance between any activity and the internet. To illustrate primary issue of Google Inc., we will briefly highlight company’s SWOT analysis in Table 1.

Table 1: SWOT Analysis, Google Inc. (Cruz, 2015).

Strengths

Weaknesses

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 Own 70% of market share profit in  90% of Google’s profit comes from search the industry from internet searches. and ad alone, making them heavily dependent.  Android has 80% of global market  Labor compensation is too high for short share  AdSense is the #1 money makers, term result; employees can manipulate earnings higher by cutting back. which drives a lot of traffic to Google & their ad partners.  Mozilla replaced Google and made its default search engine for its Firefox to  Loyal employees who want the Yahoo which affects Google market share company to succeed, with the best and its share price. engineers on the world to develop work incredibly.  Lowest probability and revenue among competitors like Microsoft , Yahoo &  Pipeline of products coming out Apple, within R&D investment. Threats Opportunities  Google driverless car has opportunity  Facebook; 1st threat to Google, people spend on this website tremendously. to transform the world.  Apple; is considering replacing Google as  Nest is developing “the internet of the default search engine in iPhone which things” to connect devices. Google & can affect on Google’s short term price. Nest can get the smart home market share.  Amazon; people directly use Amazon  Google Glass instead of searching through Google for  Google fiber; providing broadband product to buy. internet and cable television and  Security breach liability and criminal increasing number of location. liabilities were always a threat. Primary Issue Google business model relies heavily on advertising through Google website and Google network members’ website. The financial analysis in figure 1 reveals that 85 to 90% of company revenue drives from ads alone in 2014. The advertisers can easily terminate their contracts if their investments in advertising do not generate sales leads or brand awareness to their customers or if not deliver their advertisements efficiently. Google revenues and business adversely affect if advertisers stop placing. Although advertising revenues of company is growing recently, the data in Figure 2 for probability ratios indicates that Google is suffering from declining of net profit margin, return on asset and return on equity. Therefore, Google operating margin is experiencing downward pressure as a resu aspects of its business.

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Figure 1_ Advertising Revenues, Google 10-K Financial Report 2014. Members’ websites are AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager- Other Revenues are digital content products such as apps, music, and movies.

Figure 2_ Google Profitability, Data from Morningstar .com Alternative Solutions

Google Inc. can increase its revenue by continuing earning revenue from advertising of Google website aggressively but adjusting business strategy pricing model, generate revenue from developing non-advertising products, and reduce the cost of revenues. Advertising Revenue, Continue Improvement Google Inc. can continue earning revenue through Google websites; however, company has to adjust business model to earning revenue aggressively. The biggest threat for Google is its rivals such as facebook with high traffic which is more attractive for advertisers. Advertising revenue growth is driven primarily by an increase in the number of aggregate paid clicks through Google advertising program. The increase in the number of clicks is due to some factors such as new and richer ad formats, an increase in aggregate traffic across all platforms, the continued

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global expansion of products, advertisers, and user base, and an increase in the number of Google Network Members which partially offset by certain advertising policy changes. Google revenue growth has generally declined overtime due to increasing competition, query growth rates, challenges in maintaining growth rate as their revenues increase to higher levels, the evolution of the online advertising market, investments in new business strategies, changes in its product mix, and shifts in the geographic mix of their revenues (Google, 2014). Google has to consider the rate of change in revenue as well as the rate of change in paid clicks and average cost per click (CPC) which is the current model of pricing on Google websites and Google Members’ websites correlatively. Google has to work with different pricing models such as cost per thousand (CMP) and cost per acquisition (CPA), and click through rate (CTR) depend on company type of campaign (World Press 2008). For example Pepsi would just like to enforce their brand and be seen across many websites, without any need for the user to click on their banners and CMP model is the best deal to be preferred. Google also can make changes in advertising quality or formats in expand ad sizes or contextual and display to adjust rate in paid of adverting. In addition, in Google Networking Members’ website, Google AdSense is not advertised to public attention properly and there is a lack of awareness of how to use AdSense which is one the first money makers of advertising revenue. Improvement in AdSense for search, AdSense for content, AdExchange, AdMob, and Double Click Bid Manager can increase Google revenue remarkably. Non- advertising Revenue_ Development Portion of Google revenues is derived from non-advertising revenue which are digital content products such as apps, music, movies, Google fiber and technology products such as Google smart watch, Google Glass. Google has to focus on expanding offers to their users

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through products like Google Play, Google for Work, and Nexus devices to boost up its revenue in this segment. Google has to focus on advertising and marketing new products and introduce them to public efficiently. For example, Google fiber can be a threat of substitute for Net Flex if it’s present properly with an effective business strategy model. Moreover, Google smart watch is one of the products that were predicted for massive revenues when it’s launched to market, however Google has a slow start, and its sales were lower than expectations. Even Google Glass failed compare to Apple watch. Google Glass didn’t fail because of the technology, rather because it wasn’t clear to the customer what problem it’s solved or why they needed it. Reducing Cost of Revenue There are many ways to reduce expenditures to get to lower cost of revenue and higher profit. Although cost of R&D is not capitalized, company has to spend cash to invest in this segment. Google is currently invested heavily in R&D and capital expenditures in areas of strategic focus, such as search and advertising, as well as in new products and services. Google can save value and profit via joint venture or starts up fund financing options especially in Google driverless car. There are many automobile manufacturers such as BMW, Mercedes Benz which are willing to invest in vehicle innovation and technologies. For example BMW launched new series of BMWi3 as vehicle efficiency which definitely is open to add more specifications to its new products and invest in R&D with Google Inc. As a result of that Google not only will save profit in R&D segment, but also will obtain significant saving in compensation wages and operating expenses of using BMW high-tech engineers. Decision Criteria and Analysis Table 2 illustrates six factors that are assigned to the alternative solutions. Google’s organization structure is primarily functional key with weighted 21%. Google structure is not

GOOGLE CASE STUDY ANALYSIS particularly unusual and is overseen by a board of directors, which passes instructions down through an executive management group; however, what makes it different is that Google’s management helps their employees meet the objectives that the employees set for themselves. The company sees its managers as leaders who facilitate inspiration and empower employees. Google leadership structure is based on a rule called the 70/20/10 which employees are accepted to devote 70% of every work day to assigned projects, 20% to projects and ideas related to core projects, and 10% to any new ideas that pursue them to creativity (Thompson, 2015). The second factor is to compete with other media such as Microsoft and Yahoo. Google requires employing the power of differentiation to create a competitive advantage. Google has been focused on becoming a search engine and has to have a high advantage in cost and speed as well. Moreover, Google has to compete with Apple products in non-advertising segment to gain revenue. The weighed is allocated in this factor is high with 21%. Another critical success factor with weighted 18% is employee development and retention. Google’s goal is always attract the best and brightest skill sets. Internal and external environmental factor can also affect in strategic control and is weighted 14%. Google systems are vulnerable to any electrical service disruptions and failing to provide search results for approximately 20% of traffic which is only about 30 minutes will affect the entire Google system and result in lost revenue. Another environmental concern is new technologies that do not compliment Google’s current operating systems. For example, the number of people who access the internet through devices other than personal computers, including mobile phones, tablets, handheld calendaring and email assistance, and television settop devices (Google, 2005).

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One of the other keys to success of Google is the culture of the organization which is weighted 11%. Google’s atmosphere is relaxed, fun and laid back to foster creativity. Google provides free lunch and encourages employees in weekly roller hockey games, skiing trips, picnics, and is generous in its rewards to employees by offering bonuses, stock options and profit sharing (Google, 2014). Cost is designated with weighed of 14% because every segments of company from traffic acquisitions to operating expenses are allocated in cost fluctuation.

Table 2_ Weighted decision matrix _5-6= High = Great; 3-4 = Medium; 1-2 = low = Poor. Weighted

21%

21%

18%

14%

11%

14%

100%

Factors

Organization Structure

Rivals & Competitions

Employee Development & Retention

Internal & External environmental Impacts

Culture of the Organizatio n

Financial Cost

Score

6 6 x .21= 1.26

5 5 x .18= 0.90

6 6 x 0.14= 0.84

2 2 x .11= 0.22

4 4 x .14= 0.56

4.62

High

High

High

Poor

Medium

6 6 x .21= 1.26

6 6 x .18= 1.08

5 5 x .14= 0.70

2 2 x .11= 0.22

4 4 x 0.14= 0.56

5.08

High 2 2 x .21= 0.42 Poor

High 5 5 x .18= 0.90 High

High 2 2 x 0.14= 0.28 Poor

Poor 6 6 x .11= 0.66 High

Medium 2 2x .14= 0.28 Poor

3.17

Alternatives Solutions Advertising 4 Revenue, 4 x 0.21= Continue 0.84 Improvemen t Medium Non6 advertising 6x .21= Revenue1.26 Developmen t High 3 Reducing 3 x .21= Cost of 0.63 Revenue Medium

GOOGLE CASE STUDY ANALYSIS

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The timeline and implementation process and schedule of advertising and marketing for Google’s non-advertising products is indicated in table 3 as follows; Table 3_ Implementation Plan for Non Advertising products such as Google Watch, Google Glass, digital content products such as apps, music, movies, and Google fiber.

Start & End date 05/1/15-06/30/15

7/01/15- 09/30/15

10/01/15-10/31/15 10/01/15-11/30/15

10/01/15-11/30/15

12/01/15-12/31/15

01/01/16-03/31/16

01/01/16-03/31/16 04/01/16-06/30/16

Responsible Pricing Principal and Pricing Associates: Sarvajna and Karen, Yooki

Task – Milestone Projection costs of products, values, positioning, and success of products in market, identifying competitors price and threats Survey, Quantitative analysis, Pricing Principal & Identify current issues and report. Associates, Director of Product management; Scott Communicate with Product management and technical managements to shape the strategy, communicate with financial management. Plan & Marketing Leaders Identify targets groups (ages, gender, and Psychographic profiles) of each product. Plan & Marketing Leaders Develop scheme for marketing and training segment Develop scheme for customers’ awareness (QUICK WIN). Marketing & Branding Develop scheme for image and brand of leaders, Marketing graphic products, communicate with designers and design marketing graphic design team members. Project leaders & CEO; Meet to communicate all concerns and listen Page to recommendations, modifying pricing models. Marketing teams Identify current customers & new customers. and ad & commerce team Customize support contacts information. Create informational flyers and posters. Develop scheme for mail architecture & delivery. Modify customer awareness models (QUICK WIN) such as social media; TV, Journals, tablet apps, mobiles apps, banners, flyers. Identify location where people congregate, like checkout line. Legal; Communications & Evaluate license rights to third Party intellectual properties, and auditing. Policy management Marketing teams Distribution and launch the plan – First and ad & commerce team Round.

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07/01/16-07/31/16

Monitoring team, financial team & Product managements

07/01/16-09/30/16

Monitoring team & Marketing team

10/01/16-12/31/16

Marketing teams and ad & commerce team/ Pricing Associates& Branding team HR management

Ending 2016 Ending 2016

Financial leader & Pricing Principals

Departmental workflow meetings. Develop Screen casts/Help sheets. Monitoring revenue and communicate with product management. Identifying 1st round issues, report and resolve Monitoring of competition and expanding current product offerings. Continue advertising and monitoring revenue_ Second Round advertising plan for products. Third Round advertising plan for products. Survey for customers’ awareness, Brand loyalty. Congratulate employees and managers. Employee rewards and bounces. Results presentation to the Board.

Conclusion Although culture of creatively and hiring best skills at Google has resulted in many new products, however most of these products have not produced substantial new revenues and the advertising on search engine is resulted much of Google’s revenues. Many of Google products are offered for free to customers to encourage them to use the Google engine, but Google is still undergoes lower sales in its products because of a lack of customer awareness. Users usually are not clear about new products function and what problems can be solved and why they need these new products. Google should seriously identify issues related to lower sales and find reasons of unattractiveness of products to customers and launch a marketing model for its products. Google requires establishing realistic time frames and goals for milestones review and identify the correct monitoring systems to continue to be successful.

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References Cruz, M. (Jan. 8, 2015). SWOT Analysis for Google for 2015, Retrieve from http://obvious-stock-picks.blogspot.com/2015/01/swot-analysis-for-google-for-2015.html Dickey, M. (Jan. 29, 2013). Google's Entire Strategy Can Be Boiled Down To 7 Words, Retrieve from http://www.businessinsider.com/googles-strategy-2013-1#ixzz3YjmHcOIR Google (Dec. 12, 2005). Form 10-K. Retrieved December 12, 2005, from http://www.sec.gov/Archives/edgar/data/1288776/000119312505065298/d10k.htm Google (Dec. 31, 2014). Form 10-K. Retrieved December 31, 2014, from http://www.sec.gov/Archives/edgar/data/1288776/000128877615000008/goog2014123110k.htm#sE515092573B60BBFB7CFA63594C1B537 Morningstar (Apr. 2, 2015). Google Inc Class A, Retrieve from http://www.morningstar.com/stocks/XNAS/GOOGL/quote.html

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Thompson, S. (2015). Google's Business Leadership and Organizational Culture, Demand Media, Retrieve from http://www.ehow.com/about_6692920_google_s-organizationalstructure.html World Press (Jun. 18, 2008). What is CPM, CPC, CPA and CTR, Basics of Mobile Publishing, Retrieve from https://mobileadvertisingworks.wordpress.com/2008/06/18/what-iscpm-cpc-cpa-and-ctr-basics-of-mobile-publishing/? Yahoo Finance (Apr. 15, 2015). Google Inc., Financial Profile, Retrieve from http://finance.yahoo.com/q/pr?s=GOOG+Profile...