Google Corporate Strategy essay
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Google’s corporate strategy is the broadest and is usually developed with the organization overall mission in mind. Pride & Ferrell indicated that ‘corporate strategy determines the means for using resources in the functional areas of marketing, production, finance, research and development, and human resources to reach the organizational goals 1. The corporate strategy at Google determines not only the scope of the business but also its resource deployment, competitive advantages, and overall coordination of functional areas. Pride & Ferrell noted that ‘the company’s corporate strategy planners are concerned with broad issues such as corporate culture, competition, differentiation, diversification, interrelationships among business units, and environmental and social issues’ 2.
Hajdini says that Google provides a range of products and services starting from search engines, online mapping, social networking, video sharing, radio and television advertising, online payments, mobile phone operating systems, online productivity and many more information domains3. In the year 2010 Google was the world’s biggest search engine, representing $37.1 billion of all internet queries compared to $8.5 billion represented by Yahoo. Hajdini indicated that Goggle through its corporate strategy has become the world’s leader in selling its ads through the World Wide Web from which source Google today generates 99 percent of its largest amounts of revenues in the online world.
Google’s Diversification Strategy
Google primary corporate strategy is related to diversification. As a result Allen mentioned that Google achieved diversification strategy through corporate entrepreneurship and innovation and acquisitions’5. Allen says that diversification enabled Google to increase its offerings and decrease its competition6. As the industry leader the company used offensive strategies by constant innovation of its product lines and expansion into other industries like mobile phones, maps, blogging, news and health. As part of its strategy Google provided internet users with the most relevant search results on as many topics as possible. This included going global to outsource and expand markets by providing its products in foreign languages. Allen also noted that Google business level strategy was a broad differentiation strategy since it offered features that other search engines did not, such as translating from one language into another, while still providing the most relevant search results7.
The former CEOs at Google Eric Schmidt played a fundamental role in lying down the corporate strategy of the company. Hajdini says that CEO set the general direction of the company and focuses attention of its members on particular areas of endeavor, thus being able to lead Google orientation towards innovation8. The corporate strategy at Google is believed to have been set by the former CEO Mr. Schmidt. Hajdini says that he was believed to build and set the general direction of the company towards the mission of Google, which still is to “organize the world’s information and make it universally accessible and useful9”. Google’s corporate strategy was founded in good settings, with orientation, goals and mission.
Importance of Google’s Diversification
Through diversification Adler says that Google has a lot of large brands through diversification which are known worldwide and have the absolute leadership in the market 10. He also says that customers have very strong brand awareness for their main products the search engine and YouTube. Diversification has made Google a very powerful company which at the moment does not have to fear competition for its main brand. Adler noted that it is likely that Google does portfolio analysis as well, but they are certainly not the basis for strategic decisions11. It is evident that most of Google’s products are free, only supporting the brand image and for generating visitors on those web pages which use AdWords or Ad Sense.
Through diversification Google used its windfall from advertising to fund a flock of new services including Google Desktop (a cluster of information utilities accessible directly from users PC screen). Google Books Search an ambitious plan to digitize the books from the world’s greatest libraries. The corporate strategy also ensured that the company came up with Google Scholar a tool for searching academic papers, Google Chrome a new internet search browser and Google Plus the latest social networking site.
Allen says that diversification played a fundamental role in the company’s purchase of a number of other firms over the years including Keyhole which became Google Earth, Writely which became Google Docs, YouTube, and Android which went to become the Android Operating system for Google’s new phone launch called Android in 2008 12. In the year 2008, Google had more than 4 billion dollars in revenues with the majority of it coming from the company’s AdWords business model or click through advertising. AdWords was one of the most revolutionary developments in the media world since television itself.
Hajdini says that the business strategy of Google changes every 9 months as the company growth has been remarkably high. In this context recruiting highly skilled employees has become one of the most important priorities of the company13. Hajdini noted that the company gives importance to recruiting highly skilled leaders and managers who have strategic thinking and understanding of what the company is trying to do14. The acquisitions have been appreciated by many scholars and have shown to be profitable.
Jerkovic says that Google is more dominant in Europe with approximately 80 percent of search engine market share 15. In Asia Google is running neck to neck with Baidu. Another regional search engine powerhouse is Yandex which owns more than 60 percent of Russia’s search engine market share. According to Jerkovic it is hard to dispute Google’s world dominance in terms of world searches 16. Google home page has not changed much over the years. Its default search interface mode is Web and one can change this to images, maps, shopping, or Gmail among others. What has changed over the years is Google results pages, mostly with the addition of ads and supplementary search results. Jerkovic continues to indicate that in the years ahead, Google will be hard to beat, as it is many steps ahead of its competitors such Yahoo and Baidu. Google is also using many of its own or acquired tools and services to retain its grip on the search engine market17.
Adler stated that the heart of Google is still the search engine. The Google’s search engine was started in 1998 and nowadays it has a market share of almost 90 percent in Europe and about 60 percent in USA. The main competitors of this search engine are Yahoo and Microsoft Bing18. Yahoo has a 21 percent of market share in the USA and 3 percent in Europe. Bing has 10 percent in the USA and 3 percent in Europe as well. In the year 2009 Google’s YouTube had a market share of 73 percent in the sector of video portals. Adler says that there is no competition which could really attack their strong market position because the next competitor is Google itself with its own Video portal. Adler also noted that Google has a market share of about 8 percent while other competitors are Myspace.com with 8 percent and Yahoo Video with percent19.
In his research Jerkovic indicated that Yahoo was Google’s biggest rival for many years. In this context what sets Yahoo apart from Google is its interface20. This is because when one gets into Yahoo website, he or she can actually see a web portal with all kinds of information. Many users see this design as cluttered with too much competing superfluous information. Jerkovic also says that it may be long time before the majority of people switch to Bing if they ever do. Pujol noted that the market share of Google has grown tremendously such that Google is even commonly used as a verb as in “I will Google it”21. He continues to say that more than industry; the key factor to consider is competition. Nehls says that Google being a global technology leader focused on improving the ways people connect with information22. Google competes against traditional forms of advertising such as television, radio, newspapers and magazines.
Comparison between Google, Yahoo and Microsoft
In relation to internal perspective, creating values differs among Google, Yahoo and Microsoft. Nehls says that while Yahoo is concerned with providing web-based search activities, Internet shopping, auction and email services the company is rather a provider of content and communications23. Yahoo tries to reduce costs of competing with Google, trying to increase market share and customer value. On the other hand Google is profiting most from 76 percent global market leadership and the company mainly offers the benefit of implying higher number of user visits compared to rival thereby steadily increasing attractiveness for advertisers. Nehls also indicated that through its diversification strategy, the company has acquired YouTube and Double-click and partnership with Omnicom are expected to boost its display advertising business furthermore increasing value to customer24.
Ramsinghani says that for 2010 alone through diversification, Google acquired 48 companies. For Google, the technology drivers have opened up new revenue sources. Its acquisition of Applied Semantics helped Google develop a text advertising network called Ad Sense, now a multibillion-dollar revenue generator. Ramsinghani also says that Andy Rubin’s start-up, Android Inc. was snapped up by Google and led the development of what is now a leading operating system for smart phones25.
In addition, Nehls it is important to note Google invested $154.000 dollars per year and Googler in research and development in 2010 followed by Microsoft spending $97.000 dollars and Yahoo per year and head 26. Nehls while Google’s spending in development increased from $2,119 million in 2007 to $3,762 in 2010, Yahoo and Microsoft spending increased by $10.58 respectively and 3.29 percent. This put Google as the company with the highest spending in research and development pay off into innovations and greater competitiveness27.
As far as customer perspective is concerned, arguing the clarity of customer value proposition and the company’s ability to attract targeted customers needs is essential for Google. Google’s customer segment is focused on two retailers. Nehls says that technology affine people, highly interested in new products and services, willing to spend a greater amount of money for introductions to market can be stated being mainly young and outgoing28. The second group represents the price sensitive customer segment, longing for cost benefit ratio, well targeted advertisements and clearly measurable outcomes.
Moreover, Nehls argues that regarding financial perspective, the key metrics for measuring financial outcomes are Average Revenue per User (ARPU), ad revenues and year over year revenue growth 29. The graph below shows the three measures showing g on x-axis monthly Average Revenue per User (ARPU), on y-axis revenue year over year growth rate, the size of bubble represents ad revenues
Competitor’s Positioning Graph
From the above graph Google holds a dominant position measured against all three parameters. Nehls established that while Google generates the highest amount of ad revenues and is on a consistent growth trajectory, Yahoo has been registering negative year-overseer growth rate, while Microsoft’s revenue is miniscule30. In relation to Average Revenue per User (ARPU) per month, Google provides the highest Average Revenue per User (ARPU) of $12.2, Microsoft lowest of $1.1 while Yahoo takes intermediary position holding Average Revenue per User (ARPU) of $3.5. Nehls further says that Microsoft online advertising revenue increased year-over-year by $100 million dollars respectively 5.6 percent in 2008 to reach $1.9 million in 200931. He further noted that compared to 2007, ad revenues are on the decline; search alliance with Yahoo seems to have done little to improve the market share. The graph below shows the comparison between key online players advertising revenues from the year 2007 to 2009. The blue bar represents Google, red bar represents Yahoo and the yellow bar represents Microsoft.
Statistics indicate that Google will face tougher comparisons in 2011, in which benchmark predicts 14 percent net revenue. Nehls established that having no debt and $100 per share in cash, Google is expected to generate roughly $32 per share in 2011 free cash flow32. Nehls continues to say that with signs of strength in its core business and success in mobile and display price target is $700 per share based on 21*2011E Earnings per share (EPS) and 13*2011E EBITDA 33. Making revenue per user of $19 and profit per user $8.5 Google outperforms Yahoo and Microsoft. In association with additional relevant measurable such as sales, net income, share price and profit margins, Google and Microsoft steadily increase their measurements while Yahoo records ups and downs.
Competitor’s Financial Positioning Graph
According to Nehls, Google commands market leadership holding 67.5 percent global market share predicted 14 percent y/y net revenue and Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) growth. Google advertising revenues have steadily increased over the period 2007 to 2009 from $16,413 million to $22,889 million reflecting an ever increasing demand for its services accounting 96.8 percent of its revenue in 200934. As a result Nehls indicated that holding a dominant position measured against all three key financial parameters, Google generates the highest amount of ad revenues and is on a consistent growth trajectory35.
Google continues to monopolize the online search advertising market, following its corporate strategic aim to defend innovation and market leadership in search advertising, mainly through expanding products and segments. Nehls says that Yahoo and Microsoft could emerge as merger threat; besides a 10-year agreement among the two competitors, Yahoo recently re-launched its lifestyle portal trying to get some Google’s market share; Microsoft bought into Facebook, leveraging a social media force against Google. This implies that a market duopoly might result on the long run36.
From the above Google’s and competitor performance, Nehls advices that Google’s corporate strategy should be revised in a view of ensuring that it uses well solvency ratio (79.93 percent) to invest heavily in social media and display advertising37. He also recommends that Google should diversify business into online and offline business to expand market share and encounter new segments that is media agency market. Nehls says that Google should continue to invest in mobile ads to skim profitable margins in a highly growing market, predicted at 47.5 percent between 2008 and 201238. Google’s corporate strategy should direct the company to reinvest high margins into future markets not entered yet like location based advertising, expected to gain the most traction in the mobile space.
In conclusion, the diversification strategy should initiate building partnerships with global players to profit from their experience and expand market share. The strategy should outline partnerships with telecommunication providers like O2 offering Google flat could increase user visits per day, increasing distance to competitors. In addition, Google should invest in partly related markets like music, hardware, Google Internet café, rethink geographical expenditure and at the same time do well to improve image, and invest in infrastructure in Third World.