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Google Inc. Internal and External Environment Analysis

Info: 11878 words (48 pages) Dissertation
Published: 11th Dec 2019

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Tags: BusinessBusiness Analysis

Google Inc.

Company Analysis

Contents

I. Company overview

II.  External environment analysis

III. Strengths and weakness analysis

IV. Corporate and Business level strategy

V. Strategy implementation: structure and culture

VI. Strategy implementation: financial performance

VII.  Remark and recommendation

VIII.     References

 

Company Overview

Google Inc., American Search Engine Company was founded in 1998 by Sergey Brin and Larry Page that is a subsidiary of the holding company Alphabet Inc. (Hosch & Hall, 2015).Its headquarters – Google plex is in Mountain View, California. The domain google.com was registered on September 14th, 1997 and Google Corporation was formed a year later in September 1998. “More than 70 percent of worldwide online search requests are handled by Google, placing it at the heart of most Internet users’ experience” (Hosch & Hall, 2015). Google began as an online search firm but nowadays it deals with research, cloud computing, advertising and provides the wide variety of products and services. Some of its renowned services are Gmail, YouTube, Google News, Google Maps, Google Earth, Google Chrome, Google Drive, Google+, Google Nexus etc.

Google is specializing in web- based products like search tools, advertising services, communication and publishing tools, development tools, security tools, statistical tools, operating system like Android, and Chrome OS, desktop applications, mobile applications that includes mobile web applications and mobile standalone applications, various hardware like Google driverless car, Google Nexus, Google TV, Google Glass, Pixel and services like Google Cloud Platform, Google Cast etc. “Google has come a long way from its modest beginnings as a university project called the Backrub (Saha, 2005) to a billion-dollar company”. Google’s success continued growing at a very fast pace that it released several versions of Google, including ten new languages in 2000. In the same year, Google launched AdWords, its advertising network that sells advertisements associated with key search words (Kollewe, 2008). Google launched Gmail in 2004 and acquired Keyhole, Inc. in 2004 which gave birth to Google Earth and Google Maps. Google acquired video-sharing site YouTube in 2006 and Android in 2005, DoubleClick in 2007 (Kollewe, 2008) which has been fulfilling the goal of Google to organize the world’s information and make it universally accessible and useful. Android has a large number of developers coding to develop the software for the functionality of smartphones. Google is constantly updating its algorithm to meet constantly changing user’s need.

Google had Yahoo have entered into an agreement that makes Google, one of the fastest growing search engines on the Web, Yahoo’s default search results provider. (Stubo & McCaffrey, 2000). Google launched its own browser Chrome in 2008 with consequent development of Google Suggest, Google Search Options which has made Google a global technology leader. Google’s Nexus line of Mobile devices was introduced in the market in 2010 and it became the first company to launch a website revealing information about requests it receives from the government (Neal, 2013).  Larry Page announced as CEO and he introduced first Google Chromebook and Google + in April 2011.Google expanded its service to Google Fiber in Kansas City that provides high-speed internet access in 2012. Google also to face criticism about issues like privacy, copyright, and censorship in 2011.

Google aspires to build innovative products in web search and advertising due to which Google is the top website and the most recognized brand in the world. Google announced a corporate restructuring forming an umbrella company called Alphabet and Sundar Pichai as new CEO of Google in 2015(Kelly,2015). Alphabet will operate as the parent company for a number of smaller companies, including Google, which will continue to focus on Internet products. Android, YouTube, apps, search, maps, and ads will remain part of Google Inc. (Kelly, 2015). Google Ventures, Google Capital, Google X lab, Fiber, Calico, Nest, Robotics division, Google DeepMind, and Google’s Life Sciences will function under parent company Alphabet. This means Alphabet is wholly owned subsidiary of Google. Thus, now Google will focus intensively on its traditional products like Chrome, Google search engine, Google Play more and YouTube.

“There are more than 2.3 million Google searches per minute, which adds up to more than 100,000,000,000 Google searches per month” (D’Onofro, 2016). Google Maps is part of Google’s core business and now has more than 1 billion monthly users. Google’s team aims to make Google’s services faster and more reliable for users. Google AdSense lets publishers earn money from online content, placing ads on publishers’ webpages which are major sources of revenue for Google (Google Inc.). Google Cloud Platform provides unlimited supercomputing power for companies. As of December 31, 2016, Google had 72,053 full-time employees: 27,169 in research and development, 20,902 in sales and marketing, 14,287 in operations, and 9,695 in general and administrative functions (Alphabet Inc. Annual Report 2017).

 

II. External Environment Analysis

PESTEL Analysis

1. Political Environment

  • Government Stability
  • Stable political environment in major markets
  • Censorship issues

The strong government and the political stability in US and other major markets has helped Google to expand its business continuously. Google collects lots of private and sensitive information which is considered as the threat by some countries such as China. Google had to undergo censorship issues as it broadcasted sensitive political issues in China. Chinese state media often accuses Google of playing an active role in exporting culture, value, and ideas rather than conducting appropriate business practices (Dudovskiy,2015). Further, the Project Loon, an initiative to provide the internet in rural areas via cell towers and balloons is perceived as undercover to conduct espionage activities by US intelligence services (Dudovskiy,2015). China has its own state-sponsored online companies like Baidu which is a threat to Google. Google often gets pressure from U.S. government for stashing its earnings in foreign banks to avoid taxes. Google is affected directly or indirectly by activities of international pressure groups such as One World Broadcasting Trust which is a recent example of political factor affecting the revenue of Google (Dudovskiy, 2015). Google is negligibly affected by employment laws and environment protection laws.

2. Economic Factors

  • Economic growth of developing countries
  • Impact of global economic crisis
  • Impact of macro-economic factors

Google is affected by macro-economic factors such as USD rates, inflation rates, interest rates, tax regulations. The revenue of Google overseas is exposed to foreign exchange rate fluctuations, liquidity, credit deteriorations. The large revenue that Google keeps in the foreign market makes it more vulnerable to exchange rate risks. The rapid growth of developing countries and economic stability of major markets has created growing number of users; with this Google has established better services and products for their users. Google was able to maintain its constant growth in spite of an economic downturn in 2009 in compared to other companies. The inflation rate in countries like India, UK, and South America is increasing which means Google gets more profit through click per ad and advertisement. Google is able to cope with global economic crisis and position itself as leadership in the e-commerce industry.

3. Socio-Cultural Environment

  • Increase use of mobile phones
  • Growing use of social media like Facebook
  • Popular suspicion and distrust of Google

Google is greatly affected by customer’s attitudes, consumer electronics products, and services, the wealth of target customers and demographic changes. With the increase in mobile users, use of laptops and computers are declining. Most of the searches are done through mobile devices so its advertising revenue is generated from mobile phones and other new formats. But the introduction of an android operating system has benefitted Google through Google Play store, Gmail, and Google+. People use Google to google restaurants, quick search, sports score etc. Similarly, social media such as Facebook, WhatsApp is dominating the market which means less use of search engine. Customers use Amazon as a search tool for online shopping which was done initially through Google. Amazon is also offering video content that is inaccessible via YouTube.  Facebook is gaining market through online advertisement. This clearly shows the traditional search engine is being replaced by other social media and websites. Many people often think Google as encroaching their private life matters as Google collects all personal information.

4. Technological environment

  • Extensive investment in research and development.
  • Growing sophistication apps that bypass search engines
  • Expanding its services to hardware technology

Google has acquired 127 companies in 2014(Farzad,2014) which means it is expanding its consumer segments from search engine to various other segments like Home automation devices, Airborne wind turbines, Self-driving car, Robotics etc.  Google invested $ 12.3 billion in research and development in 2015 ((Alphabet Inc. Annual Report, 2016). Google is facing competition from Apple as Apple product has its own search engine. Amazon has dominated online shopping search and Microsoft even has an effective search engine as Google Chrome. With rapid development of apps, there is a possibility to replace traditional Google services. For example, the online ad blocker app harms Google business of generating revenue through ads. Its competitors are developing apps that allow customers to bypass Google Search engine which will negatively affect the revenue of Google. It is crucial for Google to search better alternative to sustain its business.

5. Environmental Factor

  • Focus on sustainable business

Google has to ensure their users are safe from hackers, fraudsters and internet risks, and scams.  Google consumes large source of electricity to maintain data and information which affects natural resources in long run. Google has a culture of friendly and warm environment for its employees with large incentives that not only focuses on profit but overall development of its employees. Google is also developing technologies such as effective energy sources to mitigate ecological hazards.

6. Legal Environment

  • Legal restrictions on its operations
  • Increase in legal costs

Google is expanding its segment to venture capital markets, automobiles, and telecommunications which have more legal restrictions. Its financial sector can be costly as other insurance companies and financial companies require more legal costs. Google owns a large number of patents which invites disputes over ownership if not operated legally and these intellectual property claims are costly to defend. Google is subjected to numerous U.S. and foreign laws and regulations that protect innovations and defend claims of patent infringement.

Summary

Google is a platform that provides easy access to private and sensitive information about world’s politics to the users. Google is an exceptional company that is negligibly affected by political and, economic condition of the world. The strong government and the political stability in US and other major markets has helped Google to expand its business continuously which is the greatest opportunity for Google. It is able to use its culture of innovation to maintain the competitive advantage in the industry through rigorous technological advancement and meeting public needs. It is crucial for Google to operate cost-effectively protecting energy resources and within legal regulations in the whole world. Its strategy of organizing world’s information and making information universally accessible and useful and revenue model outstands its brand image and performance.

Porter’s Five Forces Model

1. Rivalry among established companies- High

Google faces strong competitive rivalry among established companies like Yahoo, Microsoft’s Bing, Yandex, Baidu, Naver, Web Crawler, MyWebSearch (search engines), LinkedIn (job queries), Facebook, Twitter (social network), Amazon, eBay (e-commerce) and others forms of advertising such as television, newspaper, magazines, yellow pages. Although Google enjoys large economies of scale, strong customer base, market share is unevenly distributed among existing competitors that creates advertising and legal battles. “If Google does not continue to innovate and provide products and services that are useful to users, its revenues and operating results will be seriously affected” (Alphabet Inc. Annual Report, 2016). Its competitors are constantly developing innovations in search, online advertising, wireless mobile devices, operating systems, and many other web-based products and services (Alphabet Inc. Annual Report, 2016) which is a huge threat for Google. Competing successfully depends heavily on its ability to rapidly deliver innovative products and technologies to the market and retain it among users (Alphabet Inc. Annual Report, 2016).

 

 

2. Threat of New Entrants- Moderate

The threat of new entrants is moderate for Google. It is costly for new entrants to enter the market and directly compete with Google due to the high cost of brand development. It is often an easy job for new entrants to enter into internet sector due to weak regulatory requirements and create its own algorithms of search engines but it is difficult to gain popularity and name recognition. The Android operating system can be created in different version easily. For instance, Amazon used Android system to develop its Kindle Fire app in 2011 that replaced Google apps with Amazon apps. Also, Gmail, YouTube, and Google Docs compete directly with new and established companies.

3. Threat of Substitutes- Low

The internet has a low barrier to entry and is large in scope. It has no switching cost and users often demand accurate and quick search engines. The low switching costs make it easier to transfer advertising from Google to other substitutes. Most of the search engines at present are not substitute each other as Google is the leader. Yahoo and Bing are way back than Google in case of search engine whereas Amazon and Facebook are compelling substitutes. Google earns its maximum revenue from advertising and reduced spending by advertisers could affect its revenue. So, Google has a low threat of substitutes.

4. Bargaining Power of Buyers- Low-Moderate

The bargaining power of buyers is low for Google at one point as individuals have small influence on overall revenues of Google and its services are of free cost to the public. Google collects revenue from individuals only when they click on the ads. The advertisers are the major source of income for Google. On the other hand, buyers use those search engines which provides them reliable and accurate information so it is easier for people to get services from other companies. At the present context, bargaining power of buyers is increasing due to the availability of alternatives.

 

 

5. Bargaining power of the suppliers- Low

The bargaining power of the suppliers is low as Google is the leader in e-commerce industry. Its business depends largely upon users, advertisers, and Google Network members. Since Google is able to provide high quality, innovative products, and services, many advertisers choose Google to publicize their products or services. Google generated 90% of its revenue from advertising in 2015(Alphabet Inc. Annual Report, 2016). Google is thriving to attract more customers, increase brand awareness and lead new sales so that its partners chooses to spend money on advertising. It is clear that bargaining power of suppliers remain low till Google leads the technology market.

Summary

Google is rapidly growing and is constantly tackling the intense competition domestically and internationally. Although Google faces technological, economical and legal challenges, it invests significant resources in research and development to provide quality services free of cost to the people. The buying power of users is increasing due to heavy use of search engine in daily lives and development of new technologies. The absence of switching cost and barriers to entry and buyers’ preferences imposes the threat to Google. One of the prominent threat is most of the Google tools are also operated in Apple and Microsoft. If these companies change their operating system that denies Google’s application, Google will lose its revenue from advertisers in future. However, Google is best at serving its users and its cost-effective strategy to deliver online advertising attracts more suppliers. Thus, it is challenging for its competitors like Facebook, Microsoft, Baidu, Amazon, and Baidu to beat Google.

 

 

 

 

III. SWOT Analysis

Strengths

  • Dominance in search engine
  • First mover advantage for many products and services
  • Diversified business
  • Culture of innovation and high level of informality
  • Dominant share in mobile operating system
  • Strong brand image
Weakness

  • Overdependence in Advertising
  • Sharing of confidential company information as its code of conduct
  • Falling Ad Rates
  • High turnover rates
  • Unprofitable products and services
  • Lagging in social networking
Opportunities

  • Acquisition of Android Operating System, YouTube
  • Google Cloud Platform service
  • Diversification into non- Ad Business models
  • Expand Google Fiber and Google Play
  • Worldwide internet growth usage
Threats

  • Competition from Facebook, yahoo, MSN, Apple and Amazon
  • Challenges of maintaining current growth rate
  • Replacement of web search by social media search
  • Potential lawsuits
  • Rise of local search engines

Strengths

Alphabet’s Google is the world’s best- known company for search engine. It is the undisputed leader in the search engine as it has domineering market share of internet searches. Its search engine processes nearly 70% of the world’s queries, and Android powers nearly 80% of the smartphone worldwide (Sun, 2015). Google empowers its strength incorporating with its other apps like Maps, Drive, Gmail, Chrome, YouTube, Play store and Google Now. These applications enrich customers experience and encourage to use more Google product and services. Google’s main source of revenue is its advertising business.  In 2016, advertising generated US$79.383 billion or 88.7% of Google’s total revenue and 87.9% of the total Alphabets’ revenue (Alphabet Inc., 2016). The company dominates digital advertising market.  The users are accessing its products and services through multiple devices that have increased advertising revenues from multiple sources like mobile phones and other new formats, and international markets. The strong brand image, patents, and its diversified business has supported its constant growth. Google has a culture of innovation and informality at work place that nurtures its environment and employees to grow and transform the world.

Weakness

More than 90% of Google’s revenue comes from online advertising (Alphabet Inc., 2016). Its overdependence on is vulnerable to Google due to fluctuating demand for ads. Google is currently facing heavy competition from Facebook as advertisers are shifting ads on Facebook. Google has failed to establish its presence as social media as compared to Twitter and Facebook. Google plus has very few number of visitors and followers. Similarly, its many products and services like Picasa, Google Help outs, Google Glass, Dodgeball, Google Buzz, Google wave, Google Reader etc. are not known to many users. They just add little value for the business and make only losses to the company. Google openly shares its confidential information across the organization as it code of conduct which presents a considerable threat to the company. It also has high employee turnover ratio which causes loss of its competitive edge against rivals like Facebook and Apple.

Opportunities

The biggest opportunity for Google is its acquisition of Android operating system and YouTube that enables it to compete with Apple and Samsung. Google can grab more opportunities and generate more revenues by expanding into the physical business by offering consumer electronics such as Google Nexus, tablets, and notebooks. Google Fiber is offering broadband internet, Google Drive cable TV and online storage using fiber- optic communication with high speed and high level of secrecy. This segment has not faced any competition yet. Google Cloud Platform service has offered its users with cloud and databases, networking, translations, application development, hosting and computing where end users can perform multiple functions. These diversified products and services offer more opportunities ahead for Google in the market.

Threats

Google faces competition from Microsoft, Yahoo, Bing, Apple, and Amazon as they are gaining market share in internet searches. At present context, numbers of mobile internet users are growing and web search is replaced by information on Facebook and Twitter which means low revenue for Google. At several points, Facebook’s performance in mobile ads is better than Google (Pratap, 2016). Google collects lots of personal information about its users. This leads to potential federal lawsuits as people respect their privacy. Oracle filed copyright infringement in 2010 and Masters Objects vs. Google in 2011 are some of the law Google faced in the past (Samuels, 2012). Baidu and Yandex in China and Russia are other local search engines that are emerging threats to Google (Bhasin, 2016). China is a big market and Baidu holds 70% share (Pratap, 2016) which is an unexpected rise in threat for Google.

Summary

Google’s success is directly based on its ability to exert its strength. Google has effectively dominated the search engine due to its efficiency of operations and management practices. Massive investments in research and development have enabled Google to introduce new products in the market constantly, thus gaining first mover advantage in the business. Google’s portfolio of products and services is wide and it includes the ones that do not contribute to the profitability of the business. The emerging threats from Facebook, Apple, Microsoft, Amazon and other local search engines has disturbed the ecosystem of Google. However, its strong brand image and the leader, Chrome browser among web browsers and its business model based on innovation has helped tech-giant to acquire and maintain its share in the market.

 

 

 

 

IV. Corporate and Business Level Strategy

Google’s mission and vision statement emphasize innovation and excellence. The firm’s strategic objectives are based on its mission and vision. Google puts tremendous effort to achieve its mission and vision statement.

Google’s Vision Statement

“To provide access to the world’s information in one click”.

Google’s Mission Statement

“To organize the world’s information and make it universally accessible and useful.”

As Google’s founder Larry and Sergey stated, “Google is not a conventional company. We do not intend to become one”(Alphabet Inc., Annual report, 2016), Google is striving innovatively since its establishment to fulfill its vision and mission. Its vision provides guidance to achieve its mission. Google is organizing the world’s information systematically, making it accessible and useful to the world. Google uses proprietary algorithms to organize its information, offers free services through its search engine to everyone around the world easily and processes information making search results useful. Thus, Google’s mission statement precisely states why Google exists, what it does and how it does. The leadership position empowers Google and its innovative strategies help google to effectively follow its mission. However, it seems that its vision and mission statement do not reflect diverse business of the company. As Google is expanding its business, it is time for Google to incorporate its diversified business in its mission and vision statement.

Google’s Corporate Level Strategies

Google’s Corporate Strategy is to accelerate innovation and strengthen brand loyalty through diversified products and services, acquisitions, revenue generations and industry interdependence. It involves strategic planning in corporate level and effective formulation in all levels. Strong Corporate level strategies increase corporate value.

Diversified Product and Services Strategy

Google is expanding its product and services from its core search engine and advertising business to Android Operating system, statistical tools like Google Analytics, map related products Google Maps, Google Mars, Google Street View, Communication and publishing tools such as Google drive, Google Hangouts, Gmail, Google+, Google News, Google Chrome, Google Translate, Google Fiber etc. These products serve best to the users in daily life. Diversification serves as the competitive advantage for Google. Its innovative approach makes maximum use of their core competencies, adopt sustainable growth strategies and introduce new internet related products and services in the market. This strategy helps Google to play an influential role and stand as a leader in the market.

Expansion strategy through acquisitions

The acquisition strategy of Google has helped to expand in various technology related products. Acquisitions, joint ventures, investments, and divestitures are the business strategy that enhances the portfolio of Google. As of December 2016, Alphabet has acquired over 200 companies with the largest acquisition being the purchase of Motorola Mobility for $12.5 billion (Wikipedia); later sold it to Lenovo after becoming unprofitable. Some of the costly acquisitions of Google are Nest Labs for $3.2 billion, DoubleClick for $3.1 billion, YouTube $ 1.65 billion, Waze $966 million (D’Onfro, 2015).The motivations behind these acquisitions are to make smart thermostats and smoke detectors (Nest Labs), to make strong presence within online advertising world (DoubleClick), for advancement of GPS-based navigation app( Waze).YouTube now has become second largest search engine after Google and Android operating system is the major source of revenue for Google. Alphabet did around 17 acquisitions in 2016 and 2015 (Griffith, 2017).

Acquisitions of new intellectual properties are cheaper than developing on own which is the corporate strategy that Google adopts to accelerate its growth, reduce competition, increase customer base and market share. Further, it is a quick way to manage diversified business, empower them and improve existing market share. In spite of pool of incredible human resources, Google acquires an external business than inventing internally, which is minor issue Google faces regarding its huge investment.

Revenue strategy through online advertising

About 88 percent of total revenue of Google is generated from online advertising in 2016 (Alphabet Inc. Annual Report, 2016). YouTube videos, AdSense, Ad Mob contributes the maximum to it. Online publishers and content creators can display online advertisements through specific AdSense programs such as AdSense for Search and AdSense for Video (Pineda, 2016). Ads from Google network are displayed in various productivity tools and mobile games. YouTube has created platforms where producers can earn revenue from their published YouTube videos. There is increasing trend of watching videos on YouTube than on television which makes YouTube extremely valuable in upcoming days. It is important for Google to deliver superior value to deliver advertisements effectively and competitively as the dissatisfaction of digital publishers, content partners and the distributors of its products and services adversely affects its main source of revenue.

Creation of industry interdependence

Google has created remarkable interdependence across different sectors and industries in the field of digital communication and internet. AdSense is trusted by most online publishers and media organization because of its large clients and online revenue generations. Google search has created an interdependent system to access information from other sources. Similarly, Android is the most suitable example of creating industry interdependence because this operating system is used in most of the smartphones and tablets. Google does not earn money on the Android operating system itself but through various apps developed using this system.

Thus, Google has strong corporate strategies to sustain its diversified business, increase its revenue, fulfill user’s need, support its innovative tech inventions and execute its business plans.

 

 

Google’s Business Level Strategies

Marketing and Media Strategy

Google has a whimsical marketing strategy. It optimizes its search engine home page and configurations to be compatible with an ever-changing new technology. Its micro-focused and highly aggressive business model finds a niche advertising channel to display their ads on pages with content relevant to business. Google never advertises itself but it uses social media networks to a large number of customers and serves them through Gmail service, Chrome browser, Android OS. It offers money off promotions to incentivize advertisers to AdWords. It uses retailers to sell its hardware products like Nexus smartphones and consumers’ household products. “The goals of marketing, from growing awareness to driving sales, change with every campaign, but fundamentally, marketers everywhere share the same objectives. Marketing teams at Google are no different”, says Meg Biron, media technologies manager at Google’s Media Lab. She focuses on centralizing and connecting insights, technology and creativity.

Pricing Strategy

Google adopts freemium pricing strategy for Gmail, market-oriented pricing for Chromecast, penetration pricing for Google Fiber Internet and Cable television, and value-based pricing for AdWords. Gmail has a premium version for businesses. Google Fiber competes with Comcast so, it lowers price to gain market share. AdWords allows advertisers to place bids based on their perceptions of the importance of ads which determines prices based on perceived value of the products and services. Most advertisers pay Google on Cost per Click (CPC) basis when users click their Ads. Also, Google helps advertisers extend their Ad campaigns to the Google Network members’ websites through its AdSense program and display advertising (Belmejdoub, 2016).

Google uses product development as a major intensive growth strategy (Greenspan, 2017). These different pricing strategies have helped Google to expand from being a purely web based business to smartphones and consumers ‘electronics.

Competitive Strategy

Google is a leader in U.S. A., however, it is not able to compete with other search engines especially in China. It adopts market penetration strategy for growth in China. Google has “20% time” policy which allows its employees to work on their own projects. This distinctive culture supports capabilities and boosts an efficiency of its employees. Google controls two- thirds of the market for search queries so it is difficult for its competitors to defeat Google. The availability of wide portfolio of products and services, speed and accuracy of search results, Google tools to navigate search, mobile operating system, and strong infrastructure does not let its competitors like Yahoo, Amazon and, Bing beat Google. However, the user’s preference of using social media, Amazon and Apple for advertising would challenge the company’s effectiveness.

Internationalization Strategy and business model strategy

Google offers its service in 150 countries. It holds 60 percent of market share in the world’s search engine. It offers its services in over 100 languages through Google translation tool. Its strategic theme is to expand and facilitate access to information for the entire world but due to disrespecting laws of China, it lost Chinese market share. Google first provides the local version of the language for search and later creates local presence bringing ad clients. This clearly depicts Google is managed centrally but with the resources from country-specific offices.

Google’s business model is designed suitably to manage its revenue for growth. It spends 15% of its cash flow for innovation, 20% of its cash flow for acquisitions of rivals. The acquisition of Motorola blocked entry barriers into the smartphone market and it has established horizontal cooperation with its competitors that is Google obtains royalties from Apple, Microsoft, Samsung, and Nokia for using its Android operating system.

Summary

Google’s Corporate Strategy is to accelerate innovation and strengthen brand loyalty through diversified products and services, acquisitions, revenue generations and industry interdependence. It has developed strong business level strategies such as marketing, pricing, competitive, internationalization strategies to support and implement its corporate strategies to fulfill its mission and vision. “Google’s generic strategy focuses on innovation and intensive growth strategy focus on market penetration, market development, and product development” (Thompson, 2017). Google has different approaches to strategy and execution to strive among competitors such as adaptive approach to withstand ever changing technology, allocation of risk takers and visionaries to moonshot projects, optimizers and commercial types to mature core business. Google has a whimsical marketing strategy and it adopts freemium pricing strategy for Gmail, market-oriented pricing for Chromecast, penetration pricing for Google Fiber Internet and Cable television, and value-based pricing for AdWords. Google has distinctive culture to boost capabilities and confidence of employees and has established horizontal cooperation with its competitors that is; Google obtains royalties from Apple, Microsoft, Samsung, and Nokia for using its Android operating system. All these business strategies efficiently supports corporate strategies, thus making Google the leader in the internet related industry.

V. Strategy Implementation: Structure and Culture

Structure

Google announced a new corporate operating structure on October 2, 2015, reorganizing itself into multiple companies, separating its core internet business from several of its ambitious projects. Alphabet is the parent company of Google and other companies previously owned by them (Alphabet Inc. Annual Report, 2017). Google, Calico, Google ventures, Waymo, Google Fiber are all subsidiaries of Alphabet; of which Google is the largest one. Larry Page is CEO of Alphabet, Sergey Brin is President of Alphabet and Sundar Pichai is CEO of Google. The aim of restructuring is to make core Google internet services business as one which includes YouTube, Android, Apps, Maps, Ads, Search and Technical infrastructure and to be as a leader.

Google remains the umbrella company for Alphabet’s internet related business (Alphabet Inc., Annual, Report, 2016). Eric Schmidt, Executive Chairman of Alphabet states there are more than 26 Alphabet subsidiaries of Alphabet. Alphabet retains Google Inc.’s stock price and continues to trade under ticker symbols “GOOG” and “GOOGL” in NASDAQ (Alphabet Inc., Annual Report, 2016). The restructuring helps Google to empower great entrepreneurs improve transparency and increase accountability.

Figure: Organizational Structure of Google

                                                             Alphabet

Nest Labs    Google Fiber   Google X                      Google Venture             Calico   Sidewalks

Google

Gmail                       Android                         Google            Search                   YouTube

AdWords

Google follows functional structure with management positions divided into Administrative level, Executive level and Operational level grouped into regions of interest. As a globally diversified company, Google gives autonomy and freedom to its employees. Professionals with extensive experience and knowledge work at the highest Administrative level who oversees administrative work for operations of Google. The majority of team leaders of specific departments such as Information Technology, Network Architect, Hardware System Manager, Chief Marketing, Telecommunication, Finance, Web Technologies etc. handle entire team and executive functions. Operational Level Professionals such as Database Commissioner, Application Engineer, Network Engineer, Network Administrator, Software Testing Engineer, Technology Analyst etc. manages pre-defined jobs at specific area of their expertise.

“Google has hybrid form of cross-functional and multidivisional organizational structure which is technically a matrix organizational structure with considerable degree of flatness” (Smithson, 2017). Google uses function-based, product based group of employees. For instance, Google has Sales Operation team, an Engineering and Design team, Product Management team. Sales department consists of branches to focus on America, Asia- Pacific, Europe, Africa and the Middle East. It has separate groups of employees for developing its smartphones (Smithson, 2017). The detailed monumental reorganized structure of Google is presented in Appendix I. Google’s team can directly report to CEO and share problems and solve them across teams. Google’s greatest innovation is possible due to its management practice.

Culture

Google has unique working culture where it values innovation to teamwork to employees’ happiness and comfort. Google has built a process that high priority ideas receive right resources. It has “7/20/10” strategy which encourages its employees to spend 70% of time on core projects assigned by management, 20% time on interesting side projects and 10% time on new ideas as their wish. Both Gmail and AdSense were outcomes of 20% project. Even the top management devotes 70% time on search and advertising, 20% on adjacent business line Google News and Google Earth and 10% on new ideas (Batelle, 2005). This idea was criticized by Chris Trimble in 2010 stating that the concept is expensive and useful only for some individuals. The infrastructure set up, technical and managerial tasks contribute equally for innovations in Google. The teams are allowed to experiment their ideas without excessive oversight which previously resulted in 11 products failures in 2011.There are also some issues relating to unprofitable results of its some new products, tension between Google’s core strategy as a consumer technology company and Google Glass as an enterprise product (Frick,2014).

Google follows Laissez Faire leadership style where employees are accountable to decide their project’s deadline and manage risks. The presence of highly skilled, motivated and capable experts takes managers as their inspirations. The employees can bypass middle- level management and talk directly with CEO about new ideas and other issues. This culture promotes open discussion which helps Google to achieve its goal. Similarly, the corporate culture is transparent which means they can even contribute to leadership function and participate in any managerial meetings. These open policies motivate employees, makes them aware of shared vision and do multiple tasks from multiple leaders.

Employee Perks

Google operates under Alphabet -alpha bet (Alpha is an investment return above benchmark) (Alphabet Inc. Annual Report, 2017) and as its name, Google treats its employees with unconditional facilities and amazing perks. Employees are offered flexible work hours, high salary, perks, bonuses, first-class dining facilities, gym, subsidized massage, free transportation facility, laundry room, dry cleaning, free hair-cut, swimming pools and sports and recreational facility, on-site medical treatment, generous paid leave, on-site child care. There is rule that workers can never be more than 100 feet away from food with snack stations scattered throughout the office (Google Inc., 2017). Google is ranked as no. 1 place to work for the eighth time in 11 years (Fortune, 2017). This shows employees of Google are loyal, motivated and pleased in terms of job satisfaction (86%), compensation and job meaning (73%) (Gillet, 2016).

Most Googlers think their work make the world a better place. Employees consider Google’s mission as moral than a business goal. The challenging and meaningful projects at Google are mostly successful due to motivation of employees. Google attracts and keeps talent with is luring salaries. It only looks for brilliant mind and employees are always interacting with intelligent thinkers and genius co-workers. It offers median salary of $140,000 for experienced workers, and average of $93000 for employees with one year of experience (Gillet, 2016). The work environment is flexible, work culture is innovative and adaptive, innovative are rewarded, which makes Google undoubtedly most prestigious place to work.

Conflicts

Google has faced ethical issues in the past. “Google’s operations in China created a storm of criticism when it agrees to comply with government’s wishes and censor pro-democracy and other websites” (Sherman, 2011). There had been voices to deny co-operating with China’s exploitive policies and Google decided to withdraw its services from China and relocated to Hong Kong in 2010.Further, Google is criticized for violating people’s privacy, censorship of search results, and energy consumption of its servers, tax avoidance, misuse and manipulation of search results (Wikipedia). Google was accused of copyright infringement when it made possible to view millions of books online. This case was solved on the decision that only a portion of book would be shown as per copyright “fair use” provision law. “Yelp has criticized Google for giving preferential treatment to reviews of restaurants and local businesses on its own service” (Levy, 2014). Google dealt with antitrust-related issues in Europe. As Google upgraded its Google Maps, the system removed multiple verified business owner accounts for the same business location. This created confusion and conflicts among business owners and Google.

Google’s code of conduct is “Don’t be evil” which is clear representation of unbiased, quick and accurate access to information to the users. It shows the operations of Google will be within ethical business conduct. Trust and mutual cooperation among employees is foundation of Google’s success. Google prohibits retaliation against any worker. Google maintains integrity, privacy, security and freedom of expression, avoids conflicts of interest preserving its uniqueness and boldness work culture.

Summary

The organizational restructure of Google mean cleaner and more accountable operations (Larry Page, 2015). Alphabet is a new parent holding company whose largest owned subsidiary is Google (Alphabet Inc., Annual Report, 2017). Google focuses on advertising and internet related business. The restructure was done to revitalize its culture and give more freedom in decision making to operating divisions. The matrix organizational structure groups team based on functions and products. Google has open, innovative, flexible, friendly, excellent work culture which supports its structure to achieve strategic and business goals. There is no strict chain of command as each employee can communicate with top management about their ideas and problems. Google provides luring perks to attract and retain its professional employees with flexible work schedule and free time to think out of regular projects. It is success for Google as its 73% of employees takes company’s mission as their moral and put best efforts to make the world a better place. Google’s new structure and culture interact to improve capabilities, transparency, ambitions of the company which eventually improve the life of numerous people around the world.

 

 

 

 

 

VI. Strategy Implementation: Financial Performance

Financial performance measures are used to track and monitor organizational performance. For the financial performance analysis, Google’s operating financial data of 2015 and 2016 are taken.

  2015 2016
Revenue (USD Mil) 74,989 90,272
Gross Profit Margin % 62.4% 61.1%
Operating income (USD Mil) 19,360 23,716
Operating Margin % 25.8% 26.3%
Net Income (USD Mil) 16,348 19,478
Net Cash Flow (USD Mil) 16,549 12,918
Working Capital (USD Mil) 73,141 86,603
Capital Spending -9,915 -10,212

Source: financials.morningstar.com

According to the data above, Google’s operating profit is increasing in 2016 compared to the profit in 2015. The direct reason for the increasing operating profit is increase in revenue from the diversified business. Accordingly, net income was 16,348 Mil. USD in 2015 that increased to 19,478 Mil. USD in 2016. However, Google’s gross margin is decreasing by few percent in 2016. In addition, its operating margin didn’t change too much, capital spending is increasing and the company is operating well since it has positive net cash flow.

From operating financial data, we can draw a conclusion that Google is running well because of the reasons as follows:

  1. The company keeps making incredible profit with positive net income during the years;
  2. The company is investing its profit in new projects extensively;
  3.  The company has positive free cash flows which support the company to operate freely;
  4.  The company has positive working capital (working capital = total assets – total liabilities) which means the company has its abilities to pay its all debt.

However, only analysis of operating income or net income is not necessarily the best performance metric measure because it can be easily manipulated by cutting expense. And employees often perform based on the relationship between compensation and bonuses. This may result in higher short-term performance but can result in hurting the long-term viability of the company. For preciseness, the analysis should involve Google’s profitability analysis. We have found the Google’s ratios of profitability as follows:

  2015 2016
Return on Assets % 11.36% 12.37%
Financial leverage (Average) 1.23 1.20
Return on Equity % 14.08% 15.02%
Return on Invested Capital % 12.82% 13.85%

Source: csimarket.com

In Profitability analysis, return on assets ratio (ROA), financial leverage ratio, return on equity ratio (ROE), and return on invested capital ratio (ROIC) are analyzed.

ROA = (net income)/ (total assets), ROA is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. ROA tells what earnings were generated from invested capital (assets). ROA for public companies can vary substantially and will be highly dependent on the industry. Google’s ROA is increasing from 11.36 % in 2015 to 12.37% in 2016. This change means the efficiency of Google to convert the money it has to invest in net income is increasing, which is a good sign for the company.

Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity. The more debt financing a company uses, the higher is its financial leverage. A high degree of financial leverage means high-interest payments, which negatively affect the company’s bottom-line earnings per share. From 2015 to 2016, the financial leverage of Google is decreasing from 1.23 to 1.20, which is also a good sign for the company although the incremental is not very large.

ROE = (net income)/ (shareholder’s equity), ROE is the amount of net income returned as a percentage of shareholder’s equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders invested. From the data table, it can be noted that Google’s ROE is increasing from 14.08% to 15.02% during 2015 to 2016. This change means the net income return of the money shareholders have invested is increasing. The shareholders of the company would get more interests from their investment.

ROIC = (net income – dividends)/ (total capital), ROIC is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. Return on invested capital gives a sense of how well a company is using its money to generate returns, which reveals whether invested capital is being used effectively. From 2015 to 2016, Google’s ROIC is increasing from 12.82% to 13.85%. This change indicates that Google’s efficiency to allocate its invested capital is increasing.

It is still difficult to make an effective judgment about Google’s performance until its performance is compared to the performance of the whole industry. From the above table, it can be noted that Google’s business performance is increasing and so is its profitability. As the reason, Google’s performance to the whole consumer electronic retailer industry should be compared and the performance of Google is evaluated. The relating trailing twelve month – ‘TTM ’is given below:

  TTM Google Industry
 

Profitability

Gross Margin 61.08% 55.25%
Operating Margin 26.27% 18.09%
Net Margin 21.58% 15.2%
Management

Effectiveness

ROA 12.37% 7.71%
ROI 13.85% 12.18%
ROE 15.02% 15.79%
 

Financial

Strength

Quick Ratio 4.89 2.88
Current Ratio 5.89 4.3
Leverage Ratio (MRQ) 0.2 0.35
Growth Y/Y Revenue Growth 20.38% 20.62%
  Y/Y Operating Income 22.50% 13.56%
   Y/Y Net Income Growth    19.15% 25.73%
    Y/Y EPS Growth 21.94% -60.98%

Source: csimarket.com

According to the table, we find that Google’s profitability  ratios including gross margin, operating margin, net margin are all higher than the average of the whole industry’s; Google’s Management effectiveness ratios including ROA, ROI, ROE are also all higher than the average of the whole industry’s; Google’s financial strength ratios including quick ratio, leverage ratio, except working capital are higher than the average of the whole industry; and finally, Google has higher Y/Y revenue growth, operating income growth, earning per share growth than the average of the whole industry. From the perspective of comparing with the average of the whole industry, Google’s performance is best in the whole industry.

C:UsersshresAppDataLocalMicrosoftWindowsINetCacheContent.Wordgoogle prfit.png

Chart 1: Revenue growth of Google compared to its competitors

C:UsersshresAppDataLocalMicrosoftWindowsINetCacheContent.Wordgoogle 2.png

Chart 2: Net Income Growth of Google compared to its competitors

C:UsersshresAppDataLocalMicrosoftWindowsINetCacheContent.Wordstock performance.png

Chart 3: GOOG’s Stock Performance relative to its Competitors

After analyzing Google’s financial performance and comparing it with the internet services and social media industry, we can draw a conclusion that Google is operating well in this industry with good profitability and a healthy financial status. Google has increased revenues, net income, and efficient use of capital and is able to get higher return on its investment. This financial performance analysis tells that Google is the leader in the internet services and technology industry.

VII. Remark and Recommendation

1. Diversify and Conquer

Google’s vision is to become the artificial intelligence that eases people’s life. Android and Chrome are extensions of Google’s mobile strategy which are in turn extensions of ad-delivery program (Yegulalp, 2013). Google’s products, services, innovations, and acquisitions focus heavily on advertising business, mobile technology, cloud computing and hardware. With increasing competition from Facebook, Amazon, Apple and Microsoft, it is essential for Google to expand its revenues from search based ad- revenue to mobile and location- based advertising by generating more users using YouTube, Google+, and Android. Its restructuring has separated its main search business from other business like Google Ventures, Google Fiber, Calico, and Nest Labs which are its most ambitious projects. Google is in process to become top-of-mind brand for users through its Google Maps, Google Play store, Google Local etc. Google is emphasizing on Google Fiber to replace cable and ISP business. With cleaner divisions of companies, professionals to manage, and ample resources, Google is already paving its path to conquer sustainable business to make people’s life easier and the world a better place.

2. Address privacy issues, international cultural issues and US and foreign government regulations

Google should address privacy issues, copyright issues, US and foreign government regulations and interventions. It needs to respect international culture and win customers’ loyalty to expand its market in foreign countries like China. Google’s corporation’s ethical standard (no censorship for media company) collided with national law (state censorship in China) (Heineman, 2010) violating individual’s right to privacy and religious freedom. Google’s mission is to make information easily accessible and useful to people. Google collects lots of personal information, store them. Concerns have been expressed against Google for using their sensitive data for artificial intelligence.  Google uses web-based database to store user’s data. Any system failure that release user’s data can harm its reputation and brand causing huge loss in revenue and users. It is also crucial for Google to build strong database system and follow-up compliance of all privacy standards.

Further, Google had faced patent, copyright and trademark infringement in the past regarding its product, services, and technologies. These lawsuits can cause Google to change their business practices or restrict from using certain features or functionalities that could result in loss of revenue. Google should take precise attention to its divestitures regarding chances intellectual property to avoid legal actions, cost, and loss of revenues.

3. Maintain good relationship with internet access providers.

Google depends on continued and unimpeded access to the internet (Alphabet Inc., Annual Report, 2017). If internet access providers restrict, block, degrade or charged for access to its products and services, the operating cost of google will be high and it will cause loss of users and advertisers. It is mandatory for Google to maintain good and string relationship with telephone companies, cable companies, mobile communications companies and government-owned service providers (Alphabet Inc., Annual Report, 2017). The interference by these vendors can cause significant harm to Google’s business.

4. Develop strong strategy and strengthen innovative management practices against competitors

Google is in second place in terms of product shopping space. Amazon is leading the product searches. People searches on Amazon have grown to 73 percent and 13% search on traditional search site (Enge, 2016). Google’s main competitors are not Bing or Yahoo but are Amazon, Apple, and Facebook. Google’s Android hold 84.7% of market whereas Apple’s is 11.7% (Enge, 2016). It seems Apple is not big threat to Google but Apple iOS has ad blocker which lessens Google’s revenue. In addition to this Google is facing intense competition from Facebook. Many mobile users use social media to get information and use direct apps to retrieve what they want than using Google Chrome. So, in the present context, to continue to be a leader in internet related business and social media, Google needs to develop strong strategic to expand its business in mobile technology. Eric Schmidt guiding young cofounders Larry Page and Sergey Bin is innovative bi-generational management practice that Google follows which should be strengthened in coming days to manage and organize its diversified business and smart Googlers.

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Appendix I

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