MGMT497 St Cloud State Google Company Corporate Strategy Case Analysis Analyze Google Inc in DETAILS: A well-written case analysis is characterized by cle
MGMT497 St Cloud State Google Company Corporate Strategy Case Analysis Analyze Google Inc in DETAILS:
A well-written case analysis is characterized by clear organization of information, thoughtful analysis, and realistic, workable solutions to the problems presented in the case. Make sure that your analysis is not merely a rehash of the case: do not copy sections from the case.
things to consider along with other questions:
1. Corporate strategy and business (or competitive)strategy
What have been the key elements of the company’s corporate strategy up until the time of the case? What is the company’s business strategy? What role does corporate culture play in the implementation of the company’s strategies?
2. Industry analysis
Define the industry to which the company belongs. Using Porter’s five forces model, analyze the competitive forces in this industry. Discuss those factors or problems which are most important for this industry and why they are important.
3. Company situation analysis
Make lists of internal strengths, internal weaknesses, external opportunities, and external threats. Be sure to include analysis of financial information in examining the company’s internal capabilities. Based on your analysis, summarize the major strategic issues facing the company and industry.
4. Recommendations
Select and describe a strategy for this company. Your strategy recommendations should be justified in terms of how well they deal with environmental threats, take advantage of opportunities, minimize internal weaknesses, and utilize the organization’s competitive strengths.
More details about what to cover in the case analysis is attached.
Attached is:
– The Case itself
– Instructions
-How to analyze a case slides
– How to analyze financial ratios
-an example of answering questions
Please message me if you need more explanation. Rothaermel, Strategic ManagementrConcepts and Cases
Me
Graw
Hill
Education
MHE-FTR-035
1259420477
REV: MAY 7, 2015
FRANK T. ROTHAERMEL
CHRISTOPHER K. ZAHRT
DAVID R. KING
Google Inc.
m know where you are. We know where you’ve been. We can more or less know what you’re
thinking about.
,
^
-Google CEO Eric Schmidt
^
W
dashboard. Google’s CEO Larry Page relaxed, knowing
®.!^Sonthrns had taken control of the self-driving white Lexus RX450h SUV hurtling down
H
building under construction flashed by. E-commerce and
b g data analytics, fields that Google’s technology had helped to create, were attracting an endless
*1 t
u®
capital and it makes a lot of moneya reaUy
really lot of money, he reflected. Even firms like Walmart and Ford were flocking to Silicon Valley in
an attempt to bring their Old Economy business models into the 21st century. Both the physical Ld
landscape had changed dramatically since the co-founder helped take Google^public in
(see E^hib?i7^^^’
^
consistently went up-that is until early 2015 when it leveled off
in
g
autoiTiatically swerved around some debris on the pavement, he sighed, contemplate increasmg complexity of managing Google and its external environment.
Google IS now far from a startup. In the last five years it has more than doubled its number of
employees from roughly 24 000 in 2010 to more than 53,000 in 2014. The growth was helped by a com
bination of acquisitions and mternal development. Google is famous for bottom-up innovatiL such
S oeSim of
spend 20 percent of their time working on new ideas that represent roughly
50 percent of Google s new products. However, analysts are increasingly questioning heavy Research
wh^n?e°vr
f?
percent^lose to $10 bilLn-with
what they see as offering diminishing returns.^ The Google Glass project, an integrated camera and
like a pair of glasses, was abandoned in 2015^13 years after
age bepn tinkering with it. The duration of this venture led Google to set a two-year limit on develde^r
I
disciplined new produi
entirely
search advertSg/”
^ew sources of revenue, which in 2014, was almost
^
This case is developed for (he
^sdfsLSon’TiTnol intended’!’^ Professor David R. King prepared this case from pubiic sources.
of efficient or inefficient manaMj^nt Ail ooinions exnresUd
®
’Y *1 endorsement, source of data, or depiction
King, 2015.
nagement. All opmions expressed, and all errors and omissions, are entirely the authors, © by Rothaermel, Zahrt,d
Google Inc.
Google Inc.
On the external front, Google s success in search drew increasing scrutiny from regulators, bringmg It into contact with new competitors. U.S. regulators at the Federal Trade Commission (FTC) con
cluded in 2012 that Google used anticompetitive tactics and abused its monopoly power. After the FTC
ended its investigation in 2013 and requested records following Google’s voluntary concessions, the
FTC released its findings in a 160-page report in 2015.® Subsequent to the news of the FTC report’ the
European Union (EU) antitrust regulators filed charges against Google, claiming Google used its 90
percent share of Europe s search to promote its own services.® While the ultimate outcome could take
years to resolve, the EU could, in the meantime, impose sanctions on Google to stop behavior they
deem as anticompetitive. As Google faces government regulation, it also faces increased competition
from technology companies such as Apple, Amazon, Facebook, and Microsoft, as well as from firms
in more established industries such as automotive, cable, telecommunications, and more. This rise in
competition is a direct result of an increased convergence in technology and the ability of individuals
to use technology to access information.
The irony of his car knowing where it was going while he was vmcertain of where Google was headed
was not lost on Page. Will technology continue to converge and Google thrive, or will Google splinter
from the growing complexity? The threat of EU antitrust charges underscores the latter problem for
Google for it could be forced to dismantle like AT&T did in 1984 after the Department of Justice filed
its antitrust lawsuit. Leaning back in his seat, Larry Page wondered: What kind of company should
Google be in five years?
Google History
Google founders Larry Page and Sergey Brin met in 1995 during a tour for students accepted into
&e PhD program at Stanford University. “We both found each other obnoxious,” recalls Brin only halfjokingly, “but we spent a lot of time talking to each other, so there was something there.”^° Despite this
rocky start, the pair quickly became inseparable friends.
While working on a dissertation topic. Page realized that the number and quality of links to a web
site could be used as a proxy for the credibility of that website. However, at that time, there was no
good way to determine what sites were linking to a web page. Page began working on a program called
BackRub that would index links on the web and use this index to rank sites by relevance. Creating this
index took a mammoth amount of bandwidth and computing power. It would “regularly bring down
Stanford s Internet connection by the fall of 1996. Page, with Brin’s mathematical assistance, then cre
ated an algorithm within BackRub that used the index to sort web pages by relevance. He called this
algorithm PageRank (named after himself, not web pages).
The first test of the PageRank system occurred in March of 1996. It became apparent to Page that his
system would make an excellent search engine. Page and Brin, assisted by several classmates, began
refining this search engine. In September of 1997, they decided to name their engine “Google,” which
was a misspelling of the mathematical term googol: 1 followed by 100 zeros.
On September 4, 1998, Google filed for incorporation and moved its rapidly growing collection of
servers into a garage in nearby Menlo Park, CA. The web was exploding. By 1999, 100 million web
searches occurred every day, and Google needed capital to continue purchasing servers and hiring
computer scientists. On June 7,1999, Google annoxmced that legendary Silicon Valley venture cap
ital firms Kleiner Perkins Caufield & Byers (KPCB) and Sequoia Capital made a joint equity investment
2
Rothaermel, Strategic Management:Concepts and Cases
Google Inc.
of $25 million in the startup, contingent upon finding Larry and Sergey some “adult supervision.” As
KPCB principal John Doerr observed, “It’s not saying anything negative about them, but I thought we
would do a much better job of building a world-class management team if they had a world-class CEO.
They agreed, and we closed the financing.”^^ What would become a lengthy search for a new Google
CEO had begim.
On June 26, 2000, it was announced that Yahoo had licensed Google^s search engine. Jeff Mallett,
president and CEO of Yahoo stated Our web directory and navigational guide is critical to the essential set of services that we provide.”^® Despite this acknowledgement from Mallet, Google was allowed
to insert a message below the search box stating that Google was providing the search results.
This agreement introduced Google to Yahoo’s 180 million worldwide users who generated 900M
average daily page views.^^ More importantly, this vast increase in traffic allowed Google to fine tune
its search engine. By performing statistical analysis on logs of hundreds of millions of user interac
tions, Google’s engineers were able to make its search engine vmderstand contextual clues in search
queries. Simply put, the more users searched, the better search results became.
After more than two years, the search for the right Google CEO came to an end when Eric Schmidt
accepted the position in August of 2001. Schmidt held a PhD in computer science from the UC-Berkeley.
He also had deep technology management experience, having served as an executive at both Sun
Microsystems and Novell. “Most importantly for anyone taking on the CEO role at Google,” observed
Page, “Eric is a natural fit with our corporate culture.”^®
At the end of the 2001 fiscal year on December 31, another milestone was reached. Google had its
first profitable year, reporting net income of $6,985 million.^ (See Exhibit 2.) It would never again have
a net loss. “When we were still in the dot-com boom days, I felt like a schmuck,” recalled Sergey Brin,
“I had an Internet startup, so did everybody else. It was unprofitable, like everybody else’s, and how
hard is that? But when we became profitable, I felt like we had built a real business.”^^
With a lucrative licensing agreement, a large capital infusion, a proven method of generating profits,
and experienced management in place, Google had indeed become a “real business.”
For his first coup as CEO, Schmidt made an agreement with AOL to provide them with web search
and paid contextual advertising seWices. The contract, signed on May 1, 2002, was a major defeat to
rivals Inktomi and Overtime, who had previously provided the service. At the time, AOL had 34 million
subscribers, and its site handled 22 percent of all web searches.^ Google’s own site served 31.8 percent
of worldwide searches, and through its license with Yahoo, it controlled another 36.3 percent of the
market.^ Google was now a behemoth in search.
Defeated Inktomi executive Vish Makhijani groused, “They’ll learn over time that Google takes your
users; it doesn’t help you build your prdperty.”^^ At the time, Yahoo claimed the AOL deal did not
impact their relationship with Google. However, Yahoo removed the Google logo from its homepage
in 2002 and, in December of that year, Yahoo piurchased search provider Inktomi for $235 million.^
Google stock was initially offered to the public at $85 per share on August 19,2004. The IPO was for
8 percent of the company, but only Class A shares were sold.^^ At the time, Google had both Class A
and Class B shares. Class B shares were entitled to 10 votes, whereas Class A shares were only entitled
to one. This dual class stock structure allowed Page and Brin to retain control of the company while
raising outside equity capital. Page and Brin further solidified control of Google with a stock split that
gave investors a new class of stock without voting rights in 2014.^^
3
Google Inc.
Google Inc.
In 2005, Microsoft began a nearly year-long campaign to lure AOL away from Google. Though AOL s
market share was declining, it was still the nation’s largest Internet service with more than 110 million
unique visits monthly.^® Google countered by giving AOL $300 miUion of advertising credit, as well as
buying a 5 percent equity stake in AOL for $1 billion.^® This prevented Microsoft from gaming what
Harvard Business School professor David Yoffie termed its “single best way to gam market share.
It also preserved the value of Google ads.^^ The defeat of Microsoft guaranteed Google s primacy m
search.
In April 2011, Larry Page replaced Eric Schmidt as CEO of Google with Schmidt remaining as execu
tive chairman.”^ Since then, Google has built upon this strategic advantage in online services through
advertising and taking other steps at channel preservation. Online services, such as Gmail, attract users
to Google’s sites. These sites, as well as the third-party sites located through the Google search engine,
are moLtized through advertising. Google has preserved its access to users through a number of mitiatives to protect its channels, such as Android and Chrome. Google has evolved a sop^shcated com
putational infrastructure both to answer its mammoth volume of queries as well as to offer mcreasmgly
innovative products.
Attracting Users with Online Services
SEARCH
Google is strongly associated with search, and in the US it holds a commanding lead with over 67
percent of search compared to 18 percent for Bing and 10 percent for Yahoo. Google and web search
have literally been synonymous since 2006, when the term “to Google” was a^ded to the MerriamWebster Collegiate Dictionary.^^ The search engine is constantly being updated, being tweaked 665
times in 2012 alone.^ More relevant search results are important to keepmg market share for search
queries that help justify advertising. In 2015, Google made its most signific^t change m years to make
its search algorithm favor websites that look good on smartphone screens. Google amwered over 1.2
trillion search queries in 2012 and associated advertising generated 90 percent of Google s $66 billion m
revenue in 2014 ^7- 3* (See Exhibit 3.) However, most searches do not earn revenue or attract advertisers.
Microsoft’s online search engine Bing targets the areas with the most advertismg revmue (shopping
and travel) in a strategy to ceding unprofitable searches to Google. Meanwhile, Google s large share of
Internet searches has contributed to the company running up against government concerns. In 201 ,
Europe passed a “right-to-be-forgotten” law giving individuals the right to request the removal o
results that appear when their names are searched.^^ In 2015, the EU began the process of filmg ^titrust charges against Google for having a 90 percent market share in search m Europe that rivals allege
favor Google’s services.^°
MAPS
Approximately 20 percent of all Google desktop searches are for location information.^^ Mobile tech
nology makes this information even more crucial to Google’s mission. Google Maps got its start m
October of 2004, when the company acquired Where 2 Technologies and Keyhole Corporation. W CTe
2 Technologies was an Australian mapping startup, and Keyhole was a startup, partially funded by
the CIA,^ that used “a database of satellite images and aerial photos to create interactive 3-D maps.
4
Google Inc.
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Google Inc.
In 2012, Google Docs was integrated into a new cloud storage service called Google Drive. Drive
was offered as a “freemium” service. Each user was initially allotted 5GB of free storage, with the abil
ity to add more for a monthly fee. Drive allowed Google to collect user specific information in order
to offer more targeted advertising.®^ Primarily targeted at consumer users, Google Drive at the end of
i014 had 240 million users compared to DropBox and Microsoft with 300 million and 250 million users
respectively.®®
SOCIAL NETWORKING
Google is pla3dng catch-up in social networking as Facebook dominates this area. Launched in 2004
by Harvard undergraduate Mark Zuckerberg, Facebook users create profiles with photos and infor
mation about themselves and connect with others. In 2010, Facebook overtook Google search as the
Internet’s most popular destination, and Facebook’s share of U.S. online advertising surged.®® Google
has struggled with social networking begiiming with its first attempt, Orkut. Despite being launched a
month before Facebook, Orkut never gained widespread acceptance and it was shut down in September
of 2014.®^ Its next attempt, Google Buzz, resulted in a class action lawsuit and a FTC complaint over
privacy issues. Google Buzz was shut down in late 2011 in order to “focus instead on Google+.”®®
Google+, launched on June ’28, 2011, was Google’s third attempt at establishing a viable social net
working site. While the photo sharing and video conferencing features of Google+ attracted positive
reviews, it lagged significantly behind Facebook. In 2014, Facebook, Twitter, Instagram, and Pinterest
all had more users than Google+.®® In 2014, the Google-t- organizational structure was shaken, and Vic
Gundotra, the executive in charge of Google+, departed soon afterward.®® It is likely that Google+ will
be integrated across Google’s other platforms rather than being a social network targeted specifically
at consumers.®^
Monetizing Users through Advertising
Advertising is the primary way that Google is able to provide its services to consumers. By providing
services free, Google gains market share that enables it to sell more advertising. Google’s worldwide
share of worldwide online advertising has held steady at roughly 31 percent since 2012.®^ However,
since 2012, Facebook has seen the largest increase in advertising revenues with its display ad revenue
increased 65 percent to $11.5 billion in 2014.®® Facebook’s growth largely results from its ability to
match user information with advertisements. Other firms competing for advertising dollars include
Microsoft, Yahoo, Twitter, Amazon, Linkedin, and Apple. Given the relevance of iPhones and iPads
bought at premium prices, Apple has more than 27 percent of mobile search and its iAd program
commands the highest price for advertising.®* While Apple also gets revenue from selling hardware,
Google remains largely dependent on advertising revenues. The high dependence of Google on adver
tising has led to some questionable decisions. For example, in 2011, Google agreed to a $500 million
settlement in a U.S. criminal probe over selling advertising for Canadian pharmacies that confirmed
Larry Page knew about and had approved the ads.®® Still, Google pursues advertising revenue in mul
tiple ways.
6
Rothaermel, Strategic ManagementiConcepts and Cases
Google Inc.
ADWORDS
Google introduced AdWords in October of 2000.®® AdWords made advertising more effective by dis
playing advertisements that were contextually relevant to a user’s search query. Advertisers bid on key
search terms, called “keywords,” in AdWords auctions.’AdWords determines the winner of the auction
based both on the advertiser’s bid amount and on the probability that a Google user wUl click on the
ad. This probability is determined by an algorithm. Then, when a Google user submits a search query
containing the keyword of the winning bidder, that bidder’s advertisement is displayed alongside the
search results. AdWords was the key to making Google profitable.
ADSENSE
Google annoimced the acquisition of Applied Semantics on April 23, 2003 for $102 million in cash
and stock. At the time, it was Google’s largest acquisition.®^ Applied Semantics most important product
was AdSense, a program that could distill the content of a website into a handful of keywords. AdSense,
when combined with exiting Google technology, opened the entire web to Google advertising in the
following manner: A third party would provide space on their site for advertisements. AdSense algo
rithms would match the context of the website to appropriate advertisements in the Google inventory.
Advertising revenue was then split between Google and the third party. Sergey Brin called AdSense a
“two biUion dollar opportunity.”®®
DOUBLECLICK
Google diversified its online advertising capabilities with the $3.1 billion acquisition of Doubleclick
in 2007. Doubleclick was a leading ad server, delivering display and video ads to third-party websites.
This was a key acquisition for Goog…
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