IMS180 CUNY Medgar Evers College Google & AOL PESTLE Environmental Analysis GUIDELINE: Tip 1. Contextualize the case. There is a method to my madness. Cas

IMS180 CUNY Medgar Evers College Google & AOL PESTLE Environmental Analysis GUIDELINE:

Tip 1. Contextualize the case. There is a method to my madness. Cases generally correspond to a particular set of concepts and theories. Keep this in mind as you prepare your analysis.

Tip 2. Read the case actively. The goal is not for you to grab your highlighter and speed through the case. Instead, ask yourself questions, wrestle with the core decisions, and think through multiple scenarios.

Tip 3+. William Ellet argues that there are “four types of situations” that you will often see in cases, for each here are some tips: – Problems o Define the problem in the case. This may not be obvious. o Then, be able to diagnosis the problem using the various tools you’ve acquired throughout your business training. – Decisions o Identify the decision options. o Determine the criteria by which to evaluate the decision options. o Accumulate as much evidence as possible to support your decision. – Evaluations o Again, determine the appropriate evaluative criteria. o Make the evaluation that is most consistent with the evidence provided by the case and the key criteria. o Be sure to be holistic in your evaluations – think about positive and negative aspects. – Rules (This is particularly critical for quantitative analyses) o Know the information you need to apply a rule (For example, what data is necessary for a break-even or NPV analysis) o Know how to obtain this information. o Know how to apply the rule. o Make sure your data is accurate.

Tools Ellet provides a nice model for analyzing cases. There are five key phases of the process.
1. Situation a. Figure out the big picture first; ask yourself, “What is the situation in the case? What is going on here? 2. Questions a. Develop questions about the problem, namely: i. What do you need to know about the situation? b. Think through issues related to the decision, namely: i. What are the decision options? Any seem particularly strong or weak? What is at stake here? What are the key criteria to base your decision?
c. Questions about the evaluation, in particular: i. Who or what is being evaluated? Who is responsible for the evaluation? 3. Hypothesis a. Here is where your analytical work gains momentum. Develop your perspective on the case. b. Review the aforementioned questions – now begin to develop your answers for each set of questions. 4. Proof and Action a. Ask yourself, what evidence is provided by the case that supports my hypothesis? What additional evidence do I need to collect? b. Equally important for our course, also consider how would I implement my recommendations? 5. Alternatives a. Spend some time critiquing yourself, ask the following: i. How else could this problem be defined? If defined differently, would I have the same hypothesis? ii. Where are the weak links in my analysis? iii. What is the potential downside to my recommended decision? What is the strongest counterevidence? iv. How thorough have I been in my analysis? How might a different course of action be proved?

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1. Google currently enjoys approximately 70% market share of US searches, and well above 90% in many other countries. Do you expect the search business to become more concentrated (I.e. dominated by fewer firms)? Is search a winner-take-all business?

2. In renewing its deal with AOL, could Google afford to pay AOL more than 100% of revenue generated from AOL searches? How did Microsoft’s maximum affordable bid for AOL’s search traffic compare to Google’s?

3. Currently, 95%+ of Google’s revenue comes from online advertising. How important is it for Google to pursue alternative revenue streams? Which alternatives are the most promising?

4. Do you view Google’s distinctive governance structure, corporate culture, and organizational processes as strengths or potential limitations?

PLEASE DO THIS IN PESTEL STYLE. ATTACHING WHAT THAT IS. IMS 180
Professor Richard N. Hayes
PESTEL Analysis
Six key environmental influences on strategy:
P: Political
E: Economic
S: Social
T: Technological
E: Environmental
L: Legal
Ways to measure:
Political:
– Tax policy
– Product/service regulations
– Infrastructural issues (Health, education, roads, etc.)
– Trade Restrictions
– Tariffs
– Stability
Economic:
– Economic Growth
– Interest Rates
– Exchange Rates
Social:
– Demographic Shifts
– Shifts in Consumer Preferences
– Shifts in Values
Technological:
– R&D Activity
– Rate of Technological Change
– Technological Shifts
Environmental:
– Weather
– Climate/Climate Change
– Green Movements
Legal:
– Discrimination Law
– Labor Laws
– Antitrust/Employment Law
– Health and Safely Law
PESTLE: Environmental Analysis
Components
Political
• Tax policy
• Product/service regulations
• Infrastructural issues (Health, education,
roads, etc.)
• Trade Restrictions
• Tariffs
• Stability
Economic
• Economic Growth
• Interest Rates
• Exchange Rates
Social
• Demographic Shifts
• Shifts in Consumer Preferences
• Shifts in Values
Technological
• R&D Activity
• Rate of Technological Change
• Technological Shifts
Environmental
• Weather
• Climate/Climate Change
• Green Movements
Legal
•
•
•
•
Discrimination Law
Labor Laws
Antitrust/Employment Law
Health and Safely Law
For the exclusive use of S. RAMLOCHAN, 2019.
9 – 9 1 5 – 00 4
REV: JUNE 1, 2017
BENJAMIN EDELMAN
THOMAS R. EISENMANN
Google Inc. in 2014
Google’s mission is to organize the world’s information and make it universally accessible and useful.
— Google’s mission statement
A decade and a half into Google’s notable ascent, the company’s aspirations were increasingly
unpredictable. Google Glass, in open beta, made mobile apps and the web accessible within a user’s
eyeglasses—previously the stuff of science fiction but, by 2014, available for immediate purchase in a
customer’s choice of color and design. Google’s self-driving cars were equally remarkable, having
driven half a million miles on highways and city streets without driver assistance. Was any concept
too bold? Google had even planned a space elevator—a cheaper way to launch satellites and
humans—though that product was shelved when available materials proved insufficiently strong.
Google enjoyed the privilege of exploring these opportunities because its core business continued
to produce ample profit and free cash flow. Serving an overwhelming majority of searches in most
developed countries, Google captured an even higher share of advertisers’ budgets. Search engine
advertising had proven an effective way to sell all manner of goods and services, and advertisers kept
coming back for more.
Yet there were rumblings on the horizon. Most notably, the shift to mobile devices threatened to
challenge Google’s position: Rather than requesting information and purchases by searching at
Google.com, users often chose a specialized app from a phone’s home screen—potentially reducing
the value Google could create through a suitable referral, as well as reducing advertising payments.
Meanwhile, advertising prices on mobile devices were strikingly lower than on desktops, reflecting
advertisers’ limited willingness to pay to reach users who might not be serious buyers and who
lacked physical keyboards to quickly enter credit card numbers and shipping addresses.
Google, based in Mountain View, California, had gross revenue of $59.8 billion and an operating
income of $15.4 billion in 2013. As of Q2 2014, the company had 52,069 employees and cash and
equivalents of more than $60 billion. (Exhibit 1 shows Google financials from 1999 to 2013.) Founded
in 1999, the company completed its initial public offering (IPO) in August 2004 at $85 per share.
Google’s share price exceeded $570 in August 2014, giving the company a $390 billion market value.
Meanwhile, Google.com enjoyed a 67.6% share of all U.S. searches in June 2014; Microsoft’s Bing.com,
Professor Thomas R. Eisenmann and Smita Bakshi, Sebastien Briens, and Shailendra Singh (MBA 2004) wrote the original version of this case,
“Google Inc.” 804-141. It was replaced by “Google Inc.” 806-105, prepared by Professor Thomas R. Eisenmann and Senior Researcher Kerry
Herman, Global Research Group, which was in turn replaced by 910-036 prepared by Professors Benjamin Edelman and Thomas R. Eisenmann,
which is updated by this case. This case was developed from published sources. Funding for the development of this case was provided by
Harvard Business School, and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to
serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2014, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Sharda RAMLOCHAN in Business Policy/Strategy Fall 2019 taught by RICHARD HAYES, Hofstra University from Sep 2019 to Dec 2019.
For the exclusive use of S. RAMLOCHAN, 2019.
915-004
Google Inc. in 2014
the closest rival, had just 19.2%.1 (Exhibit 2 outlines trends in search engine market share.) Outside
the United States, Google’s lead was even larger, exceeding a 90% share of search queries in
numerous countries. (Exhibit 3 reports market share by country.)
Since its IPO, Google had launched a flurry of products that expanded its domain beyond web
search. These included Gmail, Google Maps, Google Books, Google Finance, Google Docs, Google
Checkout, Google Fiber, and more. Acquisitions of YouTube and DoubleClick had expanded
Google’s presence in online video and display advertising. These initiatives fueled speculation about
Google’s strategic objectives. Products like Gmail and Finance, along with personalization features
offered on Google’s home page, moved the company toward portals like Yahoo! and Microsoft’s
MSN. Book Search, Maps, and Checkout suggested that Google was entering the traditional
strongholds of e-commerce giants like eBay and Amazon. Google’s ad-supported software, including
e-mail, calendaring, and document-management systems, threatened Microsoft’s Office and
Windows offerings. Google Fiber provided ultra-high-speed Internet access to users in three cities
(with nine more planned). Despite a late start, Google Android had become the dominant operating
system on mobile phones and tablets almost everywhere, taking market share from Apple iPhone
and iPad, and supplanting a prior generation of feature-phones. These many services and diverse
competitors raised the question: What should Google do next?
Company History
The need for search services grew as the World Wide Web expanded. One of the earliest search
services, Yahoo!, selected and organized sites into categories by human editors. As the web grew,
directory classification became infeasible. AltaVista invented technology that automated search,
relying on software “crawlers” that created a searchable index of page contents, along with
algorithms that ranked page relevance based on keyword frequency. Yahoo! added AltaVista’s
algorithmic search engine, but in 1998 Yahoo! replaced AltaVista with Inktomi, which used parallel
processing to offer faster processing and a larger index.
As website developers exploited search algorithms by repeating keywords on their pages,
searches increasingly returned irrelevant listings—“spam”—that frustrated users. In 1998, Sergey
Brin and Larry Page tackled this problem as graduate students at Stanford. Their PageRank algorithm
favored pages that were referenced (“linked to”) by other pages. These links signaled that another
page’s designer thought the focal page deserved attention. The focal page’s importance was
determined by counting its inbound links, weighting links more heavily when they were cast by
pages that Google had previously deemed to be important.
In June 1999, Brin and Page announced first-round funding for their start-up, Google, from elite
venture capital firms Sequoia and Kleiner Perkins. A year later, Google’s index of 1 billion web pages
surpassed all rivals, and Google replaced Inktomi as Yahoo!’s search engine. At the time, Google was
focused solely on algorithmic search; through December 1999, Google’s revenues came solely from
licensing its search technology to Yahoo! and other sites. Meanwhile, Google.com initially carried no
advertising and—eschewing the comprehensiveness of some portals—offered only search results,
without content or communication tools. In contrast, many portals offered numerous add-ons to
encourage users to linger, yielding more page views and greater advertising revenue.
The Rise of Paid Listings
In the meantime, a robust new model emerged to monetize search: paid listings. Pioneered by
Overture (which Yahoo! acquired in 2003), paid listings were concise text ads (then labeled
2
This document is authorized for use only by Sharda RAMLOCHAN in Business Policy/Strategy Fall 2019 taught by RICHARD HAYES, Hofstra University from Sep 2019 to Dec 2019.
For the exclusive use of S. RAMLOCHAN, 2019.
Google Inc. in 2014
915-004
“Sponsored Links”) that appeared either adjacent to or interspersed with search results. Advertisers
bid for keywords, and bids determined the top-to-bottom ordering of ads on search-results pages.
Paid listings were typically sold on a “per-click” basis: an advertiser paid only when a user actually
clicked on the advertiser’s listing.
Overture’s success was built on several factors. First, from the perspective of marketers, search
engine leads were often more effective than banner ads on other websites because search engine users
were often researching products and services they planned to purchase soon. Analysts estimated that
70% of e-commerce transactions originated through web search, and 40% of web searches had a
commercial motivation.2
Second, ordering paid listings according to “cost-per-click” (CPC) auctions yielded substantial
revenues to Overture, while meeting many users’ needs at the same time. For an advertiser, a high
position on a search-results page would yield greater visibility, more clicks, and more sales. As a
result, advertisers often competed vigorously for top positions, which meant high payments to
Overture. Fundamental to CPC auctions was the idea that advertisers paid for each click whether or
not a user ultimately made a purchase. Accordingly, the auction structure encouraged advertisers to
focus their bidding on keywords that were closely related to their products so that their ads would be
relevant to users’ requests.
Overture supplied ads to the three largest portals (Yahoo!, MSN, and AOL), which drew
thousands of advertisers to Overture’s offering. On every resulting click, Overture paid a “revenue
share” commission to the partner, keeping the rest for itself.
Paid Listings at Google
In December 1999, Google introduced its first paid listings, which it sold on a cost-per-impression
basis. (That is, Google charged an advertiser a fixed amount each time a user viewed an ad, whether
or not the user clicked the ad.) In February 2002, Google adopted a variant of Overture’s cost-perclick model: Google weighted CPC bids by the ratio of an ad’s actual click-through rate (CTR) to its
expected CTR (based on Google’s predictions). This weighting helped ensure that relevant ads
received the most prominent positions; an ad with a low CTR would suffer a lower effective bid and
would be shown less prominently, if at all. The method also maximized Google’s revenue, because an
ad with a high CPC bid but a low CTR offered low revenue.
Google soon emerged as a serious threat to Overture. By mid-2001, despite spending nothing on
marketing, Google.com was the ninth-largest U.S. website, with 24.5 million unique monthly
visitors.3 In May 2002, AOL announced it would switch to Google for both algorithmic search results
and paid listings. Google’s market share surpassed Yahoo!’s in 2004, then continued to increase,
reaching 58.4% by 2007 and 65.6% by 2009, while Yahoo!’s share decreased to 17.5%. (Exhibit 2
illustrates changes in search engine market share over time.)
In March 2003, Google expanded beyond search advertising by launching “contextual” paid
listings, a product that Google named AdSense. Contextual listings presented advertisements on web
pages that featured primarily editorial content (e.g., news or blog postings) rather than pages that
showed search results. For example, an iVillage.com page about allergies displayed a sponsored link
offering a hypnosis program—“safe, fast, and guaranteed”—to end allergy symptoms. Google and
other companies with web search technology had advantages in selling such advertising: they could
use their index of web page content to map keywords to appropriate editorial pages, and sell
contextual advertising placements to customers who primarily sought search ads.
3
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For the exclusive use of S. RAMLOCHAN, 2019.
915-004
Google Inc. in 2014
Google also developed new services that displayed still more search advertisements. For example,
in late 2002, Google launched Froogle, a product search service that identified merchants for specific
products, along with their prices. At the start, Froogle was monetized through advertisements
adjacent to search results; merchants did not pay to have their products appear in Froogle’s search
results, nor did they pay referral fees when users clicked through Froogle’s results to the merchant’s
website. In February 2005, Google launched Google Maps, which offered faster scrolling and
browsing than competitors at the time. Maps launched without ads, but Google soon added paid
listings related to the areas that users browsed.
In competing to buy placements on partner sites, Google prevailed in a series of key deals. Best
known was a 2005 bidding war with Microsoft for the right to show Google’s ads on AOL search
results. Google’s offer included buying a 5% stake in AOL (for $1 billion) and providing AOL with
$300 million of credit toward AOL’s purchase of ads at Google.4
Factors Affecting Paid Listings Revenues
A paid-listing provider’s revenue depended on four factors: its coverage rate, click-through rate,
average cost per click, and revenue split.
•
Coverage rates referred to the share of queries for which at least one paid listing was sold.
Coverage was jointly determined by the type of user searches (commercial versus noncommercial terms) and by the number of advertisers using the paid-listing provider.
•
Click-through rates tended to increase over time as advertisers improved their keyword
targeting techniques.
•
Average CPC increased with the size of the paid-listing provider’s advertiser base; additional
bidders drove up keyword prices. In late 2003, Overture’s average CPC was estimated to be
$0.40, whereas Google’s average was $0.30.2
•
Finally, revenue splits—the percentage of ad revenue that listing providers paid to network
affiliates—were determined by the parties’ relative bargaining strengths and by the intensity
of the rivalry among listing providers. For a hard-fought deal such as AOL, the partner might
get as much as 90% of revenue, though estimates suggested that ordinary partners received a
60%–70% revenue share.5
Advertisers set their paid search bids based on their assessment of the value of each click. Some
advertisers measured user behavior after users reached their sites, then set bids based on typical
conversion rates. For example, a merchant might be willing to spend $5 on advertising to sell one unit
of a given product. From experience, a merchant might know that 10% of users who click an ad will,
in turn, buy the product. Then the advertiser might be willing to pay $0.50 per click. Other
advertisers struggled to measure sales: consider advertisers selling in retail shops, through
distributors, or with long sales cycles. Nonetheless, on the whole, advertisers believed Google’s
advertising was effective. While many online publishers struggled to charge even $2 per thousand
banner ads shown (“$2 CPM”), Google could often charge that amount for a single click.
4
This document is authorized for use only by Sharda RAMLOCHAN in Business Policy/Strategy Fall 2019 taught by RICHARD HAYES, Hofstra University from Sep 2019 to Dec 2019.
For the exclusive use of S. RAMLOCHAN, 2019.
Google Inc. in 2014
915-004
Improving Search and Advertising
In the early era of searches, at least half of users’ requests failed to deliver useful results.6 To
improve performance, Google’s engineers constantly fine-tuned search algorithms. For example, in
January 2004, Google launched Personalized Search, which ordered results by analyzing a user’s
prior searches and clicks. Personalized Search also included Search History, which showed an archive
of a user’s past searches with links to results they had accessed. Other initiatives included local search
and vertical search.
In addition, Google expanded efforts to attract more advertisers, especially local advertisers. With
more than a dozen U.S. sales offices and 50 international offices, Google sought to reach small and
midsized businesses almost everywhere. Although most of these businesses focused on local sales,
Google’s geographic targeting systems could focus their ads on the right regions. The opportunity
was large: U.S. small and midsized businesses spent $89 billion on advertising each year.7
Google improved its advertiser features by offering advertisers free software to optimize paidlisting campaigns. For example, with Google Analytics, advertisers could track which advertising
keywords were most likely to yield sales—and then increase their spending on those keywords and
reduce others. These and other refinements helped Google earn significantly more than competitors.
By late 2005, Google and its partners earned 60% of U.S. paid-listing revenue from 52% of U.S. search
queries, which meant that Google earned 38% more revenue per search than Yahoo! As of December
2005, Google searches yielded paid-listing click-throughs twice as often as Yahoo! searches did (21%
versus 11%).8
Observers cited two reasons for Google’s superior performance: First, Google improved on
Overture’s policy of ranking paid listings solely according to bids; Google also considered listing
relevance. Second, by late 2005, Google’s paid-listings network had attracted two to three times as
many advertisers as Overture’s.9 Advertisers were drawn to Google because its network offered more
search traffic and allowed lower minimum bids (1¢ versus Overture’s 5¢).
In 2007, Google’s $3.1 billion acquisition of DoubleClick positioned Google for increasing strength
in placing display (“banner”) advertisements, which were DoubleClick’s focus. Google expanded
AdSense to show display advertisements as well as text ads. In September 2009, Google announced
plans to build an ad exchange to expand its role in placing display ads.10 By 2014, Google’s
DoubleClick ad exchange had grown to be a top marketplace for display advertising, widely believed
to be the largest online display advertising marketplace worldwide.11
Google’s Organization
As Google grew, Brin and Page, with guidance from their venture capitalists, sought a seasoned
…
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