Strategic Direction

Google’s products and strategies are discussed in relation to its financials.

Strategy

Google’s strategy is built on a strong foundation of broad differentiation of complementary products. Complimentary products serve to increase the use of the each of the other products and increase brand awareness. Several of these unique provisions include its Docs & Spreadsheets productivity suite, Picasa the image organizing and editing program, Earth and Maps.

These products are the key to augmenting the company’s advertising business and expanding the breadth of the brand. Google reinforces its brand image by keeping its name in nearly all its products. From Google’s perspective, the more uses a person has for Google services, the more opportunity there will be to show them ads.

Figure 7. Google Products Yearly Unique Visitors²

Google also knows that an increase in the number of internet (or other information media) users will in turn bring more users to Google. This is why Google encourages free internet access with citywide wifi and lobbied the Federal Communications Commission to allow use of the “white spaces” as recently as the first week of November 2008³. These unused frequencies between television channels can be utilized to create a situation where a person is always freely connected to the internet (and in turn, always viewing Google advertisements). Another example of this phenomenon is Google’s recent foray into the cellphone business. Google introduced the T-Mobile G1 and its accompanying operating system, Android, in September 2008⁴. By creating a phone operating system built around the internet and integrating Google’s search and other web technologies into the device, Google appears to be pushing the adoption of smartphones and changing consumers’ perceptions of the purpose of a “phone”. The old mode of ‘communication’ is now the new mode of ‘living’. By making such useful products cheaply available, more customers today are able to meet a wide range of wants through the products and services Google offers.

Google’s products do not fit nicely into a BCG matrix, which is better suited to the incremental innovation at traditionally-managed companies. Figure 7 demonstrated that the company does have a few breakout successes like Book Search, but other seemingly mature product markets such as email yielded success as well.

Google does not make money on most of its products, which is a stark contrast to most successful companies. For example, advertisements in the mail interface have notoriously low click rates, because people simple aren’t shopping for products while they are checking their email. But Google refuses to be anxious by this as the AdWords on their search service and AdSense on external sites are enormously popular and keep the company profitable. Secondly, Google’s goal is less about making money with their products and more about gathering information. The more data Google can gather and associate with a user account the more they can learn about what associations to make to give better relevance to their search product and the ads in the search interface. Eventually, all the ads will be personalized in a way that television advertising agencies could only dream of with their age and gender demographics. Google’s advertisements will be personalized according to hobbies,interests, and even one’stendency to purchase a specific type of product online.

Figure 8 shows a rather humorous view into the future where Google’s information indices extend beyond the outside internet to a much more personal level. The sober fact is that this idea is not farfetched at all. Google’s overarching strategy is to maximize its information gathering about individuals so it can transition its relevance algorithms from content-based to individual interest-based so that banner ads are just as much of a resource as text.

Stated Strategy

Google stands true to its declaration in the company mission statement to “organize the world’s information and make it universally accessible and useful”. This statement provides Google the opportunity to create its own microcosm of the world and opens the door to virtually limitless expansion. It has expanded nationally and globally, providing the premier search service in numerous languages and countries. But, Google’s great organizational skills are not just philanthropic – the company uses the same relevance data for its search results that it uses to deliver advertisements and make money⁵.

Strategic Fit

The leading competitors to Google’s work strategy are the technology giants, Yahoo and Microsoft. All of these companies’ motivations are simple — try to draw the most advertising dollars from their respective internet properties.

Figure 9. Ad Server Market Share⁶

Ad Server	Monthly Unique Users	Market Share	Unique Domains	Market Share
Google	1,107,489,739	35.30%	91,462	77.28%
Double Click	1,079,203,140	34.39%	6,748	5.70%
Yahoo	362,201,931	11.54%	5,147	4.35%
MSN	309,290,121	9.88%	8,099	6.84%
AOL	156,109,326	4.98%	1,976	1.67%
Adbrite	73,446,676	2.34%	3,575	3.02%

However, Google manages to stay abreast of the crowd as illustrated in Figure 9 which displays Google covering over 90,000 domains and thus having the broadest reach. They also control DoubleClick, which is the image banner advertising complement to Google’s text ads. These two companies together draw the vast majority of unique users.

Google	Yahoo!	Microsoft
To organize the world’s information and make it universally accessible and useful.	To connect people to their passions, communities, and the world’s knowledge.	To enable people and businesses throughout the world to realize their full potential.

Each of the competitors offer many services on their websites and strategically do so to try to engage users for as long as possible. Each of their mission statements seem to indicate that they wield the world’s information to facilitate human connections. However, this was not always so — when Google was started, it distinguished itself not by offering many products but simply making search work as fast as possible. The company sought to go in a different direction than the other web portals that tried to bring everything to the user on their home pages. While Google has maintained a very sparse, minimalistic design on its home page, the company has added all the services of its competitors (and more) to its war chest.

Figure 10.⁷

The cost to place an ad through Google’s AdWords program has increased over time, which is attributable to their increasing market share and leverage in the industry. However, the Average Sales Per Click in Figure 10 shows that Microsoft is more effective at generating conversions, from a click on an ad to the actual purchase of product.

Other Straegies

Google regularly explores all three manners of diversification with new start-ups, with acquisition, and with strategic alliances.

Start-ups

Google has a rule that employees can spend 20% of the time working on pet projects that are not part of their job description. Such motivation helps Google innovate and diversify into previously untapped businesses but usually still makes use of their core competencies and capabilities. In fact both Gmail and Google News started off as 20% projects.

Aquisitions

Several of Google’s products are derived from acquisitions including Docs, Earth, and YouTube. These products have expanded Google’s brand and brought the previous users of these services to Google. DoubleClick , as mentioned earlier, added the banner component of Google’s advertising business and brought along significant revenue to Google’s income statement.

Alliances

It is interesting to note the Google and Yahoo recently explored an alliance for advertising but federal judges threatened an antitrust investigation so Google backed out. This move did not cause a financial setback being prompt and respectful of other partners. Yahoo and Google in fact have a history together. Back in the early 2000’s Google provided all of Yahoo’s search results.
Google has in the past started organizations to leverage the power of alliances. One example is OpenSocial which allows developers to create applications that will work on all the member companies’ websites. By giving developers a common API, the alliance hopes to draw some of the attention away from Facebook, which is the largest social networking site. Google also created the Open Handset Alliance to promote the use of its open source Android operating system. This alliance leverages the capabilities of both phone manufacturers and independent developers to compete with Microsoft’s Windows Mobile platform, RIM’s Blackberry, and Apple’s iPhone.

Google understands the wealth in diversification. Exploring new opportunities constantly over a solid base of research could prove profitable with the use of products that can reduce cost – cost of production, advertisements, etc. These new products are crucial in gaining leverage in the constantly changing market and providing an alternative industry if need be. Google understands that valuable profits and minimized risk can be garnered with international operations. The company’s international revenue totaled over $2.7 billion in the second quarter of 2008, 52% of their total revenue⁸.

Google’s diversification coupled with its ongoing promise to deliver on its strategy has been the key to its success. Google remains the top brand image in the market.

Works Cited

Posted by Ben on Jun 04, 2009

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