Understanding Industries essay
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Google Inc. is a multinational corporation that specializes in the internet search technology. The corporation develops and hosts many internet products and services. The organization was started by Larry Page and Sergey Brin in 1998. The company went public in the year 2004. This essay will asses the extent to which Porter’s Five Forces affects Google and also critique the extent to which Porter’s Five Forces do not affect Google Inc.
Google Inc. runs over a million servers worldwide and processes over a billion search requests and more than 24 PB of data on daily basis. The organization has enjoyed massive growth rates resulting in the creation of new products and chains of merging and acquisitions to its current position. The company has as well diversified its products to include software development and mobile phone applications (About Google). The company’s products include: Gmail email software, social networking tools, web browser (Google Chrome), Picasa photo editing and organization software, mobile phones operating software, and YouTube among others. The organization has enjoyed years of superiority and dominance in the market since its inception (Google – Blackboard).
Porter’s Five Forces Analysis
The model was formulated by Michael Porter in the year 1979. It identified five dominant forces that affect the competitive nature of the business. These forces include: bargaining power of the supplier, barrier to the new entries, the bargaining power of the buyers, threat posed by availability of substitutes, and, finally, the competition from the other organizations within the same industry (Hill & Jones, 2009).
Suppliers Bargaining Power
Google draws most of its revenue from advertisement. The advertisement makers as well as the receivers are all customers of the company products. This is in the sense that the advertisers depend on Google to make the adverts reach the intended destinations and the consumers; as well they depend on the organization for its products and services. The company has developed a strategy to merge the two needs and has dominated in the market for years. This gives the company an upper hand, and the supplies bargaining power is therefore limited. The company’s performance has continued to grow over time thus it is guaranteed an upper hand over the suppliers as long as it remains dominant in the market (About Google).
Rivalry from Competing Corporations
This refers to the competitions from the companies within the same industry. Google aims to organize the world information into accessible and usable form. The company has as well diversified operations into other technology sectors, such as software development and social media and applications. The company made close to $40 billion in the financial year 2011. Google competitors include: Yahoo! Inc., Microsoft Corporation, Amazon, E-bay, Monster Worldwide, and WebMD Health Corporation. The dominance of the Google search engine has continued to grow for years thus enabling the organization to stay ahead of its competitors in terms of market share (Preissl, 2009).
Threats of Potential New Entrants
When Google was started, the barriers to the entrance were relatively low as compared to the way they are currently. By then, Yahoo, Altavista, and Excite were the only operating searches engine tools. The market was not mature as it is today. The current search tools have gathered immense amount of data in the content as well as the web pages plus the user’s history profiles. This has led to the improvement of the services delivery. A new entrant will therefore need to come up with a fast and better results engine than the current ones which is hard to come by (SEO Expert Services).
Threat of Substitutes
This refers to the threat that is posed by the presence of close substitutes in the market. Google and other internet search tools enjoy a market free of substitutes. Internet is a major information source in various sectors. The information organization criteria may be altered but the search engine remains an important tool to conduct searches. A substitute to the information organization does not exist. The only possibility is for an invention of a new product with similar or more advanced features.
The Bargaining Power of the Buyers
Adverts are the major source of revenue for the company. However, the contribution of each individual account is low, thus the powers of the buyers are limited. Google has strategized a method whereby the advertisers bid on key words and the adverts clicked on. Therefore, the company can be said to enjoy an upper hand in the bargaining power of the buyers (Hill & Jones, 2009).
Porter’s Five Force Model seeks to identify the dominance forces that determine the competitive nature of an organization. The model asserts that the five forces are the only critical forces that are necessary for the company to remain competitive in the respective industry. This is a weak principle to follow in analyzing the competitive nature of a business entity.
To start with, the concept of the power of the suppliers does not perfectly apply in the case of Google. This is because the organization does not depend on the suppliers to produce its finished products. It simply organizes the information making it easily accessible thus creating a platform for the customers to access the information. The company then incorporates advertisements in the platform so that the interested customers are able to access. The concept of the buyers’ power is also applicable at a limited degree. This is because the buyers are independent entities and their trends are not related. Assertion that buyers have a control over the business is complicated as Google is not realistic (Washington, D.C.: U.S. Congress, 1994).
The model ignores other numerous factors that have the potential to affect the competitive nature of the business. These other factors include the geographical location in which the company is operating. The global operation characteristic of Google lessens its depending on a single location and this can give the company an upper hand compared to a competing firm which is localized to only one country. Demographic factors in a way can affect the nature of the competition in a business. Another factor that has the potential to affect the competitiveness is the level of technology. Google has remained at the top of its business owing to continuous research and innovations on better ways of rendering services. If a more technologically advanced technology is introduced in the market, it has the potential to affect the operations. The economic factors of the operating regions are not factored in. Then the political and legal factors are ignored in the principle. The government may pass laws that might have adverse effect on the competitive nature of the organization. Finally, as the population becomes more dependent on the internet, the search engines become better equipped with specific features that allow the users enjoy the use. These include features like mobile applications and social sites which have the potential of giving a competitor an upper hand (Washington, D.C.: U.S. Congress, 1994).
In conclusion, Porter Five Model is too shallow if at all it is to be used in the analysis of Google Inc. A broader model or a hybrid model ought to be adopted. The model should also be customized to suit and fully cover the needs of a particular industry.