The mission of Google Inc is to organize the world’s information and make it universally accessible and useful. The company’s unofficial slogan is “don’t be evil”. The primary stakeholders in Google include not only the company’s shareholders but also customers, suppliers, employees, community, and trade associations. Their decisions can also be influenced by activists groups, the government, and even the media. Each stakeholder has a relationship with Google, and that is the reason of the stakeholder’s power to affect Google Inc.’s decisions. The business model used by Google ensures no stakeholder obtains a level of importance they can manipulate singly or change the direction of development of the company.
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Forces of Competition Analysis
Five forces of competition are a framework for industrial analysis and the business strategy development relative to the company’s competitors. Outlined below is their impact on Google Inc.
Potential New Entrants
Barriers to entering in Internet search market are extremely high. Current competitors have a lot of servers in many locations in the world and have data about the habits of users. Each new entrant should have to provide for even better search outcomes at the exceptional speed to compete in the highly competitive market. One should consider that when two cofounders introduced Google in the year 1998, Excite, Yahoo, and AltaVista were dominant companies in the search market, but Google has since eclipsed them all (Vine, 2007). However, the market now is more mature with a necessary path dependency to search data on both the content of webpages and search histories of users. Therefore, the threat of new entrants in the already saturated Internet search market is relatively minimal.
The ad system of Google is an extremely reliable income source since both ad-receiving and ad-making individuals are Google’s customers. As long as Google maintains its dominance in the market with the search product, the bargaining power of suppliers will remain relatively low. The cost of revenue of Google as a sales percentage in 2010 was 40% (Google, 2010). This percentage is also the same for Yahoo (Google, 2007), which makes clear that two companies are almost efficient equally in maintaining their collaboration of supplier-seller.
Google’s stated aim is organizing the information of the world and to merit it they have added many complementary products to the primary internet service (Google, 2009). Advertisements that are based on information they collect with their products are the main source of income for Google. In 2007, they had $16.6 billion in revenues which have grown annually on average of 115% in five years (Google, 2008). According to ComScore Inc. (SCOR), Google commands 64.8% of Internet searches in the United States. Yahoo and Microsoft, their main competitors, manage a mere 15.5%% and 14.7% respectively. However, competitive rivalry is not only strong but ongoing in this industry, since large amounts of advertisers’ money flow to the website that captures the largest most of searches.
As of 2011, 96% of Google’s revenues were gained from advertising (Google, 2011). However, no account makes the contribution of about 3% to their net revenue and less than 4.9% of the revenue is generated by any network site (Google Inc., 2010). Although, there are no buyers who have a controlling interest. Google attracts both the large and small keeping buyer power low.
In 2011, the Internet is the mode chosen by millions of people everywhere to request and retrieve information. Therefore, there is no substitute suitable for the search. The information gathered may be organized in various ways. These include different categories sorted by other criteria. The company provides tools in order to complete these tasks and conduct searches. In the near future, a substitute product might be invented; however, there are no substitutes for organizing the information on the Internet.
The external environment profoundly impacts company activities and Google Inc. is not an exception. Some of the external environment factors considered are;
Internet search is particularly applicable to most cultures all over the world, thus, freeing Google from geographic dependence. Now, the company owns more than 20 offices in the U.S. and international offices in more than 30 countries working on sales, research, and marketing (Google, 2010). The fact that Google offers a personalized search engine for more than 120 countries, and the continual improvement of language support means the company is likely to gain even more market share. Computers today are becoming more affordable for many people in economically disadvantaged countries. This means that every day more people are gaining easier access to the Internet than compared to previous years.
Google is relatively young and extremely well-positioned in demographics. Therefore, the company will not be significantly affected by the Baby Boomer’s age as compared to another old timer. In addition, Internet search is not gender-specific and would not get hurt by changes in the ratio of males to females. The company can, however, benefit if some traditional and paternalistic societies use the Internet more frequently.
Currently, the United States is in a recession period and stocks are trading at all-time lows. Technological companies like Google are relatively isolated since search and internet-based advertisements are pined to the world economy and society. In fact, Google is truly well-positioned to weather the downturn. The crucial need to stay well-informed and always connected keeps their services viable, despite unfavorable economic time surroundings.
The world has been increasingly becoming more connected because of the ease in communication brought about by Internet availability. For many computer users, the search giants like Google make Internet more navigable. Internet is increasing among all age groups and across all cultures, meaning most of the population will become increasingly dependent on an Internet search.
In addition, most upcoming cell phones are Internet-enabled. People use these devices to locate restaurants, for driving directions, download music, check sports scores, and even do a quick research. Google stands to benefit since this increases the number of search queries. Google has introduced the Android Mobile Phone Platform and Operating System for mobile devices. They also have the Google Mobile App that can be easily downloaded on many other platforms like the Apple iPhone.
Internal operations that have a significant impact are shown below.
Google is a young company and has only been public since August 2004. Their share of the stock sold for $85, but in late 2007, the stock had reached around $750, which is an 882% return in 3 years. The shares have since now dropped down to the high $300 range mainly because of the recession the United States is experiencing.
Google derives most of its revenue from advertising. Many of their online products are free to use and are supported by text ads displayed within the interface. Analysts would undoubtedly want to know whether Google’s business model is sustainable and if in the future users ignore Internet-based advertisements what is going to happen.
Value Chain Analysis
Google’s activities in its value chain vary significantly from the traditional model where raw materials are manufactured into finished goods. Google does not produce physical products; therefore, their value chains are different. Google collects all the web users it can through enticement. They do this by providing a stellar search product with relevant results accessed promptly. Then, through text advertisements, it directs web users in the form of traffic to their advertising partners who can transform traffic into sales on their sites. Google not only adds value by directing web users to some specific sites, but also by sorting qualified visitors using the keyword association and search history. Data on the history of its users is of the utmost importance, since it helps Google improve its advertising interface and search algorithms.
Google has continually sustained competitive advantages because of their remarkable scores accrued in measures of rarity, value, substitutability and imitability.
Google’s products bring value to customer, since they provide relevant links and websites promptly. Their website features a minimalistic design; this rare service ensures that advertisements are not an annoying interruption to the users.
Google has an impressive track record, but still remains quite dependent on the search. This means they have little or no scope to increase their market share, unless they diversify. This means their growth will slow down or halt as the market inevitably matures. Google mobile and display revenues go on becoming significant, but remain relatively minimal. Even though they developed alternative sources, like Google plus and wallet they are still in their potential stages and not releasing the significant outcome.
Google is subjected to numerous U.S. and foreign laws and regulations which cover a wide variety of subject matters. Incoming laws and regulations or even new interpretations of existing regulations impact negatively their business.
Costs of compliance with these new laws and regulations are high and quite likely to increase in the near future. A failure on their part to comply with these laws and regulations can lead to negative publicity and, thus, diversion of management time and effort, and may subject them to significant liabilities and other penalties.
In the future, income taxes would be affected by earnings that are being lower than anticipated by jurisdictions that obtain lower statutory tax rates and vice versa. Google has been subjected to reviews and audits by both domestic and foreign tax authorities. The unsuitable outcome of such reviews could have an adverse effect on their operating results and financial condition. This means that the tax outcome may differ from amounts recorded in financial statements and can materially affect financial results in the period for which such determination is made.
Google faces intense competition and must; therefore, continually innovate and provide products and services that make them relevant. Rapidly changing technology and shifting user needs mean Google has to be on its toes all the time. Competition is from general-purpose search engines, vertical search engines, e-commercial sites, and social networking sites. For this, Google needs to invest in research and development, in order to improve their web search technology.