Google - CASE 14 Google Internet Search Service Company...

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Unformatted text preview: CASE 14 Google: Internet Search Service Company Joseph Teyé-Kofi, Robert J. Mockler: and Marc Gartenfeld IN Fennum or 2005, ALMOST 51x Mon-ms men Gooone’s INITIHL PUBLIC OFFERING (IPO) of stock, CEO Eric Schmidt announced the need to develop an effective company— wide strategy in order to brace for the next level of services and products Google Wanted to offer to stay ahead of the competitionln the last quarter of 2004, Google’s operating income totaled $321_r‘nillion, versus $322 million for nine-year—old eBay and $260 million for 10- year—old Yahoo. As an industry market share leader, the overall task at hand was to develop an effective differbntiatingenterprise—wide strategy especially for the company’s Internet searCh segment, enabling Google to survive and prosper against aggressive competition in the intermediate and long—term future. _ r The company generated revenue by delivering relevant, cost-effective online advertising. Businesses used the company’s AdWords program to promote their products and services with targeted advertising. In addition, the thousands of third—party web sites that made up the Google Network used the Google AdSense program to deliver relevant ads that generated rev— enue and enhanced the u'ser’s experience. - As shown in Exhibit 1, Google‘ had many tools andprovided many services. Here, com- mon terminologies in Internet search'are defined for clarity. A web browser is a program used for displaying and viewing pages on the World Wide Web. A search engine is Computer soft- ware that compiles lists of documents, most commonly those on the World Wide Web, and the contents of those documents. A blog is an easy—to-use web site, where people can quickly post thoughts and interact with other people, and more. Browser buttons let the user search the Internet simply by highlighting a word (or phrase) on any web page and clicking the Google Search button. This case was prepared was prepared by Joseph Teye-Kofi, MBA student at St. John’s University, under the direction of Dr. Robert J. Mockler and Professor Marc Gartenfeld of St. John’s University. Dr. Mockler and Professor Gartenfeld revised and edited this case. This case was reprinted from Cases in Domestic and Multinational Strategic Management, Publication (VIII) #44, pp. C5-1 thru C5-21, edited by Robert J. Mockler and Marc Gartenfeld. The copyright holders are solely responsible for the case content. This case was edited for SMBP—l lth edition. Copyright ©2005 by Robert}. Mockler, Strategic Management Research Group. 114 East 90th Street (113), New York, NY 10128. Reprinted by pennisSion. 14- I ;R5.‘.Wfi.l‘.m is:mvxwvccnnfisbxw‘exmwsm» e % i will” m SECTION D Industry Two—Internet Companies Exhibit 1 Gongle’s Tools and services As for tools, Google’s desktop search allowed users to find email, files, web history, and online chat on their computers offline. It allowed users to instantly view web pages, even when not online. Adding Google Browser Buttons to a personal toolbar granted access to Google’s search technology, without taking up extra screen space. “Googie in Your Language” was a tool that intended to use volunteers to translate all of the world's languages into a database that could be utilized by users of the service. Picasa Photo Organizer was a free software download from Google that helped users instantly find, edit, and share all the pictures on a personal computer. As for services, Google alerts were email updates of the latest relevant Google results (web, news, etc.) based on users’ choice of query or topic. With Google Answers, more than 500 carefully screened analysts in various fields of study were ready to answer questions online for as little as $2.50, usually within 24 hours. Google Catalogs allowed patrons to search and browse mail-order catalogs from various companies online. Google Image Search allowed users to search for images online. Just type in the name of the image and a vast array of specific images were displayed as requested. -' Google News allowed users access to more than 4,500 local and international news sources. updated continuously. Google’s wireless adaptable search technology could be accessed from any number of devices, such as mobile phones and Palm VII handhelds. Whatever the language or platform, Google let users search the web with ease, speed, and accuracy. .Google’s main strength was the fact that it had established itself using superior Internet search technology. It had also made phenomenal strides in the international arena. Moreover» the company’s successful IPO gave it the financial leverage needed to expand and easily become a‘ large, independent web portal. A portal or portal site isa computing home site for a web browser. Portals are Internet hubs, more like Grand Central station, that serve as 9- Cfm‘ nection 'Or link to other places that might be of interest to web users. Google’s raw maleFals' were the technical proficienby and innovativeness of its employees. The question rfimflmed whether or not Googie should continue primarily as an Internet search engine or IIlOIPh “3‘0 a ' large web portal. . Google’s major weakness was the fact that there were virtually no switChiilg m the industry, and Internet search users would try another search engine if they dildsn-o-tfi what they were looking for using Google’s search technologies. Microsoft’s next - of the windows system, code-named “Longhorn” and slated for release in 20053.; TA,” presented a potential threat to Google’s services. Microsoft” ' quoted as saying, “Google is a very nice system but compared to my V pathetic.”l Moreover, Microsoft had all the funding it needed and, if it focused search technology, was bound to vanquish many big players in the Internet ment. The main problem to be resolved was how to further differentiate 60931 search segment from its competition and to achieve a winning 6d _ within intensely competitive, rapidly changing immediate, intermediate, time frames. ' {I} § (3 ('0 he '6 m .. m (D O <. ~\-'\1V~L\5l\“rManyfiyapem-Ju‘msnu‘s‘u‘fir:nvmuuwnurm .\: L‘s/(.1:Harnxrti'sagfimmxmmtwa asum‘r" a. cyxx:hryfitmnnrm.mscuwmtfivwfl mama :Mxrewknmzaw :raawvzt‘nm: ccesmenemmwmnmv: raw. tee?::¥‘»=:x:-e>:t\~:7t-er;¢«:' suitcases-awe: vet's-met: CASE FOU'RTEEN Google: An Internet Search Service Company Exhibit 2 provides a list of Internet terminology and concepts. .General . - ’Kwéb-png'e is"'a location Qn'theIWorld WideWeb: é'rc'omput'ér filo, encoded in hyper— ' 2': eg'tjlmarknp Ignguaéei and'contr'ajnin'g’téfi', gidfimCéfiles, and sbfind files,- h'at-is actéssibleithrongh {he World-Wide Wen-Eva? web page has a unique ' ; I‘Li'form 'Reisoni'cé“'Looaihtor or: aaqfess.'yForH'éiizaijrifilé, when 'users typé ' _ ". stsj'o'h-n's' g-iedufint'o-an‘Internet Eitplo'ré: a" dressr'ba‘rgam 'pfes‘s {‘Femezy "the! auwt:wm-.=-..\n===u .-.\-.m=u=m '5. a: g i 11 313193 .. . _ . '3hY’Héfi'itSJQWfi'iifiiiié . . - . ésfibxis’éé’qh; a-._G_o' 1e "1:34-21? seafchfwonld‘, 'ihei‘éfoxél miter ' éSfilts, Whiéfiaviroul 319:9. différ"'fiom_-Ad-L' aeéich'_réan-ts'"or Ieé 1 - 7 A browser is:oompntgfsoftirqarexhat allows Infernét 'use'r :.t sea: _ _ ‘Inationipn-fli‘gz‘flfofld Wiqe'Weth ig-theuvehicle _that;_§flows-yonsio' fié’w’rel mam one web pgggtp‘ the other just -by-ty’p_ing_-the wgbiaddi‘ass... .- ' . Awe!) :browsex.:i$ al-prtégiam used"fox'di5p1,av.i.ng and viewingpag'e's on the _Wofld Wide Web; It'ig' the actual framework Ithat allows Internet users to - see web-2 pages ina paxficuiar vfindowL_. . . Z : . r - ‘_ - ' ' Spywéye is ai'_gén:ei"a1_'.te__rrn for: aprogxalnftnat suneptitiously inq'nitq_ré_ a 'u_$er’s_"_ actio'fis- Alth'cfighép‘vwéar'e is'scfriétlirfiefi SiniSfetIais‘Wi'th.arehiqfehdntml program .- uséd by"; j'haekér, 'éb'itwaxe comiaanies haire :b'éé 1cm "to ufsé: sfiywaxej‘tqgaihe'r - at'a ab'outiéns'fo'rnéré. Thé’praexj ' *ge'ne‘rafly 'ffdwnéd- 6:1; -' ' -- ' ' r I 'A'gifiiaéfifis-‘an ad tha't‘aisplaysima fiefiibm‘wsaér mfidéw. Pop—1:1)- windows Come.- n_many'idifférentijéhapés andi'si'zés,»typicé]1_yin.a-iscale'd—downbrowé'er'iffindow with onlym'e' Close, Minjzrfize, and-\Méxinajzécomlnandéssome Web Suiférs"stronngr-reséiit .. 1‘: mums saw: u" . '3 a an SECTION D Industry Two—Internet Companies Exhibit 2 (Continued) because was Source: MSN 2005. "MSN" ( online ) http:/(finance. yahoo. com. Accessed March 27, 2005. Membership Services Competition The large Intemet search companies such as AOL, MSN, and Yahoo were beginning to channel a lot of effort toward maintaining and developing their Internet search capabilities to match Google’s current Internet search supremacy. These large companies already had a lot of non—search related member services in place and would enjoy a big advantage if they were able to successfully utilize the information in their large membership database—including email accounts, personals (groups and online dating services), and fantasy sports_to help them adver- tise to their members based on specific responses to previously asked questions. Google electron- ically scanned the contents of its Gmaii service letters and placed relevant ads based on keywnrds contained in the letter beside the email once it was opened to be read by a Gmajl service member. (Gmail was Google’s name for its email service.) The main key to success here remained how to successfully convince members that the confidentiality of their personal information would not be compromised or shared with other marketing entities such as telemarketers. The main competitors of Google in Internet search technology were MSN, Yahoo, Competition was fierce in this segment for two reasons. First, a great deal of revenudwas being generated by the Internet search companies, and the major Internet service prowclefS had been awakened by Google’s rise to fame and its ability to generate revenue from ads placed next to its search results. Even though MSN, AOL, and Yahoo offered many 0111‘” 53" vices, they trailed Goo gle in market share and, most importantly, user loyalty, brand identity - . . . - ' all and easy name recognition when 1t came to Internet search. These four big compames provided search services, but Google was by far the most popular. The other three 00 were, however, bigger and offered more variety in non—search Internet services. The reason some analysts referred to these relatively bigger companies as Interns?t gisterifi key to the future of Internet search rested with the company that was best at? t; fly 1., at: v :2; patrons and to successfully utilize that information to advertise even more 6 mi‘v‘wL‘E\iu'crfixkrtAhht’t‘\“Waafi‘erwauwahvfltal:wsvvmvmtetwmuxnviwuxu mums reams-mane: wads waxemmwc swam: CASE FOURTEEN (Somalia-1mmemet 563mb semce C°mpany Second, it was difficult to predict the direction in which the Internet search segment was heading with regard to innovation. Every competitor in this segment was trying to be more innovative in search solutions, because quality search results guaranteed customer loyalty and its accompanying advertising dollars. anmwmxmmmmu smm‘mxvumalvaxaen: sawswhtamtxvninvmcr Yahoo Inc. together with its consolidated subsidiaries was a global Internet brand. The company provided Internet services that were essential and relevant to users and businesses through the provision of online properties to Internet users and a range of tools and market- ing solutions for businesses to market to that community of users. The company was focused on extending the marketing platform and access to Internet users beyond the Yahoo Network through the distribution network of third-party entities (affiliates) that had inte- grated the sponsored search offerings into their web sites. Many of the services offered were free to users. It provided services that allowed businesses to list information on prop— erties on the Yahoo Network. The offerings to users and businesses fell into three cate- gories: Search and Marketplace; Information and Content; and Communications and Consumer Services. Yahoo placed second to Google in the number of people who utilized search services and was far ahead of the competition when it came to all other Internet services such as email, shopping, online personals, and travel. The opportunity for success was for companies to offer newer and more innovative services in order. to build a solid membership base that could be utilized for directory-linked target advertising. Directory-linked target advertising, the future of Internet search’s continued revenue generation, first had to overcome its most demanding test'of ensuring confidentiality and preventing identity theft. Yahoo had an advantage because it had a huge registered membership already in place owing to the services it offered such as email, auto information, shopping, and driving directions. On the other hand, Yahoo had weaknesses when it came to linking its search engine to an already established information source such as the online Britannica encyclopedia, and it also did not have a platform for online auctions. Yahoo efficiently offered business services such as domain name registration, web site design and development, and web hosting for small and new businesses. This repre— sented a great source of additional revenue. However, Yahoo was relatively weak with regard to assuring registered service members of the confidentiality and security of the personal information they shared with the company. Also, Yahoo was not considered a dominant force in Internet search technology. For the fiscal year ended December 31, 2004, Yahoo’s revenues totaled $3.57 billion, up from $1.63 billion. Net income totaled $839.6 million, up from $237.9 million. Results reflected increased marketing services, fees and listings sales results from growth in Yahoo’s organic sales and acquisitions and higher investment gains.3 cvrntto‘sa m :tt‘;:.:s\j;x:;€;\:.v~.m:m AOL Time Warner Inc. (Time Warner) was a media and entertainment company. It classified its businesses into five fundamental areas: America Online (AOL), consisting principally of interactive services; Cable, consisting principally of interests in cable systems providing video, high—speed data, and digital phone services; Filmed Entertainment,'consisting princi- pally of feature film, television, and home video production and distribution; Networks, con- sisting principally of cable television and broadcast networks; and Publishing, consisting principally of magazine and book publishing. AOL was a subsidiary of Time Warner Inc. It specialized in Internet services provision and more recently began to focus on Internet search ' l l a . l-!! MSN H I SECTIOND IndustryTWO—Internet Companies services as an additional revenue source. In the Internet search segment, AOL ranked fourth behind Google, Yahoo, and MSN with regard to volume of Internet search patrons.“ AOL’s strengths were the variety of services it provided. These included online dating services, email services, Internet service provision, news, and sports. The services it provided such as instant messaging allowed it to successfully register all its patrons. This broad membership base could be the needed catalyst for future advertising in the Internet search segment. In addition, AOL had established a very secure web site with virus protection and spam blocking controls for its Internet service subscribers. AOL’s international image and popularity remained an Achilles heel. The company, because of its inability to effectively market to non-AOL Internet service subscribers, was not popular outside of the United States and Canada. Moreover, the company’s search service was not a dominant one in the Internet search segment when compared to the leading search companies. For the fiscal year ended December 31, 2004, revenues rose 6% to $42.1 billion. Net income frOm continuing opera- tions and before accounting change rose 2% to $3.21 billion. Results reflected higher world- wide license fees from television series, partially offset by legal reserves expense.5 l i ll Microsoft Corporation developed, manufactured, licensed, and supported a wide range of software products for various computing devices. The company’s software products included . scalable operating systems for servers, personal computers (PCs), and intelligent devices; server applications for client/server environments; information worker productivity applica- tions; business solutions applications; software development tools; and mobile and embedded devices. Microsoft provided consulting services and product support services and trained and certified system integrators and developers. The company sold the Xbox video game console, along with games and peripherals. Its online businesses included the MSN subscription and the MSN network of Internet products and services. The company’s seven product segments were Client, Server and Tools, Information Worker, Microsoft Business Solutions, MSN. Mobile and Embedded Devices, and Home and Entertainment. The MSN network was a subsidiary of Microsoft Corporation and offered Internet servicas based on membership subscription for emails, online personals, shopping, etc. Recently MSN linked its search engine to its online Encarta encyclopedia software, which was a virtual data- base of information updated regularly. MSN had the financial backing of Microsoft Corporation and openly expressed its intentions of improving and taking the Internet search busineSS to a new level. MSN also offered business solutions and web page design and development for small new businesses. On the other hand, the company’s inability to mount a platform for online 336' tions and its ineptitude in the sale and distribution of still images and other multimedia Pmduds counted as areas that needed improvement. In addition, the company would be able to strollle capture market share only if it was able to bundle very effective search software into MinOSOfi s Wmdows computer program without raising any anti-trust concerns. The company gained prominence when it introduced software that made and home computing a breeze for even the most reluctant to embrace computer tecmlol": More recently, it seemed to be losing its technological luster and innovativeness-WhED {I pared to Google. A key to success would be to successfully recruit technical-ll)l Pmfimen ' workers, especially in Internet search technology, and to stop the exodus of its Google. MSN could also boost its Hotmail email service membership by has”? age limits to at least 1 gigabyte, because Yahoo was about to offer 1 gigabylf” cmafl’ its members and Google was already offering 2 gigabytes for its excluswe: members. For the six months ending December 31, 2004, revenues rose 9%‘5 3' Net income rose 44% to $5.99 billion. Results reflected continued iIEiP'-'0V‘_a Internet technology spending and lower research and development costsh 1- w-vmmaswmrmwmwmwvww maxim-ero- m. .A. tmanwarranty:crVssrt‘mamammsmzimmense-wsea-«mm-imam:amauewmmm-«s-s "'“svr'r' Exhibit 3 ompany Google was founded in 1998 by Larry Page and Sergey Brin, PhD students at Stanford University who were fed up with the existing Internet search technology companies and their inability to return accurate search results. Google was basically an online company that spe- cialized in developing a reliable Internet search engine. Of all the applications on today‘s computers, one could argue that the search engine was second in importance only to the web browser (such as Internet Explorer or Mozilla Firefox). This trend reflected the importance of Google as a service provider to the computer services industry. Google Inc. offered highly targeted advertising solutions, global Internet search solutions through its own destination Internet site, and intranet solutions via an enterprise search appli- ance. In other words, the company maintained an online index of web sites and other content, which it made available to anyone with an Internet con...
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