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 connection. Its automated search technol~ ogy helped people obtain nearly instant access to relevant information from its vast online index. In providing an avenue for search, the company also furnished ads based on keywords in a search inquiry beside the search results.‘ The company provided an interface for more than 88 languages, and half of Google.com’s traffic originated outside the United States. This clearly demonstrated a trend of international popularity and the fact that the company was satisfying an important need in the Internet jungle, where users needed a guide as to where to go looking for specific infor- mation, saving time in the process. Most of Google‘s revenue came from advertising. This was done through Google AdWords, which was based on an auction system. An advertiser would bid on relevant words, and the placement of the ads was based on the bids. A big benefit for the adver— tiser was it paid nothing unless a user clicked on its ad. In other words, Google pursued a “performance-oriented” method of advertising. This meant that very little was wasted in terms of advertising dollars spent. Again, the ad system was based on simplicity. There were no flashy ads; instead, the ads were text-based. As a result, an advertiser did not have to spend much time creating an ad campaign. It was aISO easier for the advertiser to flexibly 'chang'e ads based on effectiveness. Actually, it took only about 15 minutes to set up an ad campaign at an initial cost of $5.7 The Google AdWords system had a powerful self-management system. An advertiser could easily adjust a campaign in terms of budgets: They could set a limit on how much they could pay to have their ads posted in a given time frame. , Exhibit 3 shows a detailed description of Google’s business model. Each section focuses on strengths and weaknesses in key success areas. ' Business Model: Google, Inc. mages. Groups, Directory. News mMiretess. Toolbar, ' "Catalog an, Code Jams Submissions CASE FOURTEEN GooglezAn Internet Search Service Company g-mna-xssuA-mamy-m- ' .—.-.v.-u :uymxmeimwmmttta.show,.sxawa.\w..m‘.xmrwm1.... {sins—urannusitmmwsnsaaa at?a:w=1.\r.s\n‘a:ar—=:mrfl=axufln'xwva :asifit anu‘dééflavxvmwmtwarfla . SECTIOND Industry Two——Internet Companies t I: Search Services Google had developed a broad range of innovative search solutions. Internet search Service l was the core service from which additional services related to search branched off, i Consumers patronized all the additional services even though Google‘s revenue was 301er I generated from Internet search services. The company generated all its revenues from sell— ' ing ads that were placed beside its search results. Google charged-its advertisers an undis- closed amount of money any time an ad that was related to a search inquiry was clicked by an Internet search user. The ad clicked did not have to generate a sale for Google to get paid: a phenomenon in Internet search advertising knowu as “Cost per click” pricing, Google had built a financial powerhouse selling ads this way. More recently, the company announced a big change in how it was, going to sell ads. Google was going to allow adver— % tisers more control- over where their ads appeared online and how the ads were priced. The company would allow advertisers to use flashier animated graphics. The move, which applied to thousands of other web sites (third party) that used Google’s Search technology, was designed to attract more big-name advertisers and was intended to help Google better tap budgets for advertising of product brands, Which represented the built of US. ad spending.3 Images Google Images contained an index of 425 million still images. With Google Images, for example, a user typed “red sports car” in the Images search pane and pressed “enter.” A few seconds later more than a thousand pictures of red sports cars would be made available for the user to choose from. Industry experts predicted a strong demand for multimedia search. given the spread of technology for producing, sharing, and storing digital media files. Images were a strong area for Gougle because the olefin competitors had not developed a strong buzz as far as images. With the eXCep'tion of Yahoo, Google was the automatic choice for images. Groups With Google Groups, Google.00m users could search for a discussion topic and add post- ings to a newsgroup. Google acquired the. Usenet discussion service from Deja.com. including its archive of more thanISO'O million postings dating back to 1.981. HoweVBr, Yahoo was more advanced and had many patrons in groups and online personals. Yahoo j.” had several million registered patrons who used its platform for online topic discussions and posting blogs. ' ‘ uvmsxwwm Directory Google used its unique search technology to arrange, by subject category, 195':I] ' Uniform Resource Locators (URLs) that had been identified by thousands “101 using NetsCape’s Open Directory project. Every web page had a unique URI-:4 Directory service was a way of classifying or listing ail the millions of MCI database into subject categories. AOL, Yahoo, and MSN had directory Servi not many opportunities for revenue generation with this service on its owntl of attracting more patrons to discover other profitable services. In the future; E’W ‘ linked target advertising held the promise of becoming the next dirt3 “.9 Internet advertising and marketing. Google News, started in early 2004, was compiled from 4,500 news sources worldwide. Google News employed computer algorithms to identify the most relevant stories within a topic area, then, by story, grouped links to different news sources, allowing users to see how different journalists covered the stories. This service summed up the mosturead news articles for busy people who could not sift through volumes of news articles daily. Yahoo’s news ser— vice could be described as more comprehensive and a leader in this area, which was not a strong service for Google. ' Google Wireless Google’s wireless search technology translated web pages into a language understood by handheld devices. Licensees included Sprint PCS, Cingular, Nextel, Bell Mobility (Canada), Yahoo Everywhere, Vizzavi, and Palm. This technology allowed cell—phone and handheld device subscribers to the companies just mentioned the ability to use Google search if they had wireless access to the World Wide Web. The promise of licensing patented technology and intellectual property to other companies needed to be encouraged and developed. Google Toolbar Google’s downloadable toolbar could be embedded permanently in a user’s web browser. In addition to an Internet search box, the Google Toolbar included tools for blocking pop—up ads, autOmatically filling out web page forms, and creating “blog” postings pointing to a web page (see Exhibit 4). Blogs, short for “web logs,” were diaries in web page form that pre— sented personal thoughts on almost any topic. In early 2003, Google had acquired Pyra Labs and its web site, Blogger.corn, which offered tools for creating web logs. Being able to suc- Cessfully propagate Google’s toolbar on web browsers would be a step in the right direction because Internet search users would not have to go to Googlecom to initiate a search query. Google Catalog Exhibit 4 I Google's Toolbar Embedded iii Microsoft’s , Internet Explorer Web Browser. Google’s Catalog Search, a beta service started in early 2004, allowed users to search hun- dreds of print mail-order catalogs net previously available online. The catalogs were scanned, analyzed, and indexed by Google. The company was a pioneer in this area because none of the major competitors—AOL, MSN, and Yahoo—offered this service. This was a very useful service for prospective advertisers, because most patrons of this service had a coininercial motivation. A key to success would be to reach an agreement with the compa- nies whose catalogs were indexed to pay a fee to Google any time a sale was finalized through Google catalogs. The online catalog idea was an opportunity to begin collecting Geogle's toolbar 1; CASE FOURTEEN Google: An Internet Search Service Company i5 i: i S i! 9 i i i taxman—Ham. :- [ i I | SECTIOND Industry Two—InternetCompanies' : information on products and serviCes that most companies that advertised with Google car- i _ ried. This information, in the long run, could be used to enhance the quality of directory- : . linked target ads that were placed next to search results because it would incorporate almost i everything in the inventory of advertisers and increase revenues for both Internet search ' t companies and search engines. In addition, the transparency of advertising packages offered and a clear—cut pricing policy were keys to success for Internet search companies. Site Owner Services Site owner service referred to a platform that Internet search companies and large Internet - services companies used to invite potential advertisers to the variety of advertising packages they offered. It represented a grand standpoint for a web—based company to stake its claim to ‘ being in a unique position to help businesses advertise and help them reach a larger audi- 7 once. This was the link reserved for potential advertisers looking to do business with an Internet search service company such as Google. Google’s reluctance to incorporate multi- media banner ads and colorful animated graphics on its home page did not serve as an effec- tive way of letting prospective advertiSers get a visual image of Google’s advertising pack— ages, because colorful graphics tend to make a better impression. Advertising Businesses that intended to advertise beside Google‘s search results used this link to deter— mine whether Google’s offered advertising package was the right choice for their business. A business owner would access this link in order to open a business account as a potential advertiser with Google. Advertising under Site Owner Services was a link reserved only for businesses who intended to do business with Google. For example, Google’s AdWords was cost-per—click advertising. Advertisers paid only when users clicked on an ad. It had features that allowed an advertiser to control its costs by setting a budget for what it was willing to spend per day. AdW'ords-sponsored listings were also shown on Google's partner sites. Yahoo was a segment leader as far as presenting the potential advertiser with the best possi- ble packages and also in terms of the ease with which business was conducted. Business Solutions Using this link, businesses were able to assess the various ways Google could help them __ grow and become more profitable. In other words, with Business Solutions Google marketed -; the potency of its adv'ierti'sing methods to potential advertisers. Yahoo was the segment [$2153f in this area with MSN and AOL closely in the hunt. All the major players in Internet-Watch were going to great lengths to inform prospective advertisers of the v 'ous Ways ‘1 Scarab - i1 engine could help them grow and expand their clientele. The crossing poi the fact that the company refused to advertise on its home page, ‘which wag the ultimate platform. Google was the most widely visited web Site Management believed that advertising on Google's home page took away frOil1 the; patrons visited the site—quality Internet search. ‘ Submissions Case files for prospective advertisers on Google search were subtlfiilrtt‘2|__j fl“ Google had a reputation for not assigning one person or team to a 638 Advertiser switching teams assigned to a particular case. Many prospective advertisers saw Google as filled with arrogant people and found it time—consuming and difficult to do business with the company. Yahoo’s effort at making submissions brisk was unmatched in the segment. is" mars and Clients The Internet searching services’ customers and clients consisted primarily of advertisers, Internet search patrons, and large web portals, some of which had their own Internet search services: groups and licensees, among others. Customers and clients were bundled together because of the vague distinction between the two in this segment. Yahoo was a service provider to Google when it displayed Google ads on the Yahoo web site. In this scenario, Google was the customer on Yahoo’s web site. On the other hand, if Google displayed a Yahoo service ad beside its search results as a contextual ad, Google became the service provider and Yahoo became a client of Google’s search service and its related advertising. Companies in this segment normally provided email services in order to increase the number of people visiting their web sites. Most Internet search users needed guidance in finding information about goods or ser- vices in which they were interested, and Internet search engines presented an opportunity to go directly to what users needed without wasting time. Internet search users also ended up buying things or requesting services that they made queries on. This was the lure to advertisers seeking to reach consumers using Internet search companies. Google, since its launch in 1998, had grown explosively to become the most-used web site in the world. Inducted as a verb into the Oxford English dictionary, it was each month used by 165 million people in the United Kingdom and United States alone. In the lives of tens of millions of Internet users, Google was nothing less than the front door to the Internet.9 Yahoo was closely behind, largely because of its popular free email service, which was patronized worldwide. Google had numerous loyal web users who used its Internet search services frequently for search solutions on the web. Quality search results made web surfing easier, This loyal pool of patrons presented a great opportunity for advertisers to effectively reach a target audience. As Google continued to develop effective ways of linking search results to spe— cific search—based services, advertisers would keep flocking to Google for ways in which they could help businesses reach a target audience. Contextual ads, which were a Google staple, were Internet search—based ads placed beside search results directing patrons to possible solutions to their internet search query. MSN, Yahoo, and AOL also began to incorporate colorful graphics and multimedia banner ads beside search results. These were more flashy ways of attracting an Internet search user’s attention to an ad. Companies in this segment normally provided email services, online shopping, news and sports, online satellite maps, and driving directions services as a way of luring customers to their Internet search services and to also have a registered member base for future directory— 1inked target advertising. Directory-linked target advertising had not yet been approved because of the privacy and identity theft concerns of Internet service users, especially reg- istered members. CASE FOURTEEN Google: An Internet Search Service Company M4“fih‘m==.' :2 Wm l r t i l l SECTION D Industry Two—Internet Companies Technical .‘r Google’s Technology Third-Party Web Sites Staffing This section encompasses the technology behind Google’s Internet search engines and its policy in relationship to third-party web sites. Businesses used the Google’s AdWords program to promote their products and services using 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 revenue and enhanced the user experience. Google AdWords ads connected businesses with new customers at the very moment when they were looking for a product or service, The Google network reached more than 80% of Internet users. With Google AdWords, prospec- tive advertisers could create their own ads, choose keywords to help Google match their ads to a target audience, and pay only when someone clicked on them. Google AdSense was a fast and easy way for web site publishers of all sizes to display rele— vant, unobtrusive Google ads on their web sites’ content pages and earn meney. Because the ads were related to what users were looking for on a web site, web site publishers could finally both make money and enhance their content pages. It was also a way for web site publishers to provide Google Internet search to their visitors, and earn money by displaying Google ads beside search results.10 A key to success would be to remain a dominant force in Internet search technology. 2:01;mmxmwwmwyn‘mmnmisvmsmm‘vxvrflmymvmvmwfilman-wuss $fi5fl1¥rfllmw§xmfifinY¢mMfimkr Google’s policy on third-party web sites read: “The sites displayed as search results or linked to by Google services are developed by people over whom Google exercises no control. The search results that appear from Google’s indices are indexed by Google‘s automated machinery and computers, and Google cannot and does not screen the sites before including them in the indices from which such automated search results are gathered. A search using Google services may produce search results and links to sites that some people find objectionable, inappropriatc, or offensive. We cannot guarantee that a Google search will not locate unintended or objectionable content and assume no responsibility for the content of any site included in any search results or otherwise linked to by the Google Services 3’“ The goal here was to appeal to a large number of third-party web sites in order to reach a larger audience and increase market share in the process. warm-rationing»: § On—Campus Recruiting/Amual Code Jams Eric Schmidt, Google’s CEO, recently announced the company was having problems recruiting. He claimed the pool of candidates were either not of sufficient quality or not tech- nically proficient enough. The company’s headquarters in Mountain View, Califomla. employed a little more than 2,700 people, of whom 900 were techies. The company was notoriously picky when it came to hiring, even though it was . 25 new people a week. A team of 50 recruiters combed through resumes, which hail-9; __ I mitted online, then dumped them into a program that channels those chosen for anmtfl'm to the proper hiring conunittee and threw the rest in electronic trash. Interviewin Google could take months in a grueling process that would not guarantee ajobg also organized annual code jams where programmers from all over the world: cash and ultimately a job. The school campus environment at Googleplexfih headquarters in Mountain View, California—encouraged employees to stay at work past work hours. There was an around-the-clock free catering service at the cafeteria. Google as well as the main players in the Internet search segment knew the future of the segment depended on the continued development and training of technical staff that came up with more effective ways of enhancing Internet search technology. The key to success, therefore, would be setting up the right administrative mechanisms to effectively handle business operations and to Suc- cessfully recruit a quality and technically proficient work force while at the same time improving on the competence of existing employees. and Promotion ieting Most of Google’s popularity could be attributed to simple word of mouth and quality search results. The company, however, had to shift into a more proactive mode of marketing and promo— tion on a more serious level. Google needed to communicate to its everyday patrons that it existed, first and foremost, to offer Internet search services but also to get users to accommodate the fact that the company was evolving and was rolling out a bevy of non—search related services. Online Companies normally would use their own web sites to promote their services. Google, on the other hand, did not advertise on its home page. This, Google believed, let the user know that the quality of the search result was paramount. Users would be introduced to ads only after typing their inquiries. It must be emphasized that companies encouraged their registered members to customize their web browsers with a preferred company’s search pane as the default search engine. Google encouraged its search patrons to download an inbuilt taskbar on their computers for search purposes. Television Television ads and radio promotions can be an effective outlet for reaching out to an older, less Intemet—savvy audience. Television and radio had not been used traditionally as an out— let for marketing and promotion by Internet search companies, but could be considered as ,g, competition between Internet search companies intensified. A need may arise to pursue a 5' marketing strategy that includes television ad campaign. Member Services Google needed to expand its membership-grabbing effort by offering new services, such as increasing its 1-gigabyte storage limit for its Gmail users. The company’s email services were based on invitation only from an existing Gmail user. How did a person get invited to sub— scribe to this email service? Few potential users seemed to know. In a nutshell, Google needed to increase its membership service subscription initiatives if it was to compete in the future with companies with a large membership base such as MSN, AOL, and Yahoo. Competition Google’s main competitors were Yahoo, AOL, and MSN. Google compared favorably with its major competitors in key areas. Google maintained an edge in the US. Internet search traffic market share with 31%, while Yahoo and MSN held 26% and 20% shares, respectively.‘1 However, Google did not have the size, network, and existing service depth of its competitors. CASE FOURTEEN Google:AnInternet Search Service Company j i a i g ' l ,l t H SECTIOND Industry 'I‘wcr—Internet Companies ' = : . Google’s Internet search engine was by far the most accurate when compared with AOL, MSN, and Yahoo search results. The major concern in this area was the fact that all the major ‘ ' competitors had expressed keen interest in taking over the Internet search segment in a bid to 1 , reduce Google’s current market share. " l The main complaint leveled by Google’s clients (prospective advertisers) was the com- pany’s inability to assign one team to a project. The company kept changing employees assigned to already established cases and wasted clients’ time in the process because they had to start over any time a new team was assigned to an already opened case file. Finally, Google’s main competitors in internet search—Yahoo, MSN, and AOL_. were also well—established web portals with a wide range of products and services and millions of registered members. Google was yet to introduce a wide range of services to match its competitors. Google’s revenue growth rate of 233.50% (see Exhibit 5) sur- passed all its competitors across the computer services industry even though the major ‘ competitors were by far bigger and more independent web portals. Google’s main weak- ness was the fact that it had to depend on its competitors to propagate its Internet search technology. Others also suggested that Google could do without all the other services and forego the high overhead costs associated with operating a web portal like Yahoo, AOL, and MSN. - Anaemia: .. Financial Analysis Google ranked high among the computer services industry’s well-run companies. The com- pany’s profit margin of 12.52% compared favorably with the industry average. The current management’s effectiveness was positively highlighted through its ROA and ROE of 21.05% and 25.97%, respectively. ' ' Google’s revenue growth of 117.56% as of December 2004 was phenomenal and further reflected an increase in shareholder value with current revenue per share of $11692 over the same period. With regard to Internet search technology, Google had the winning search engine. This trend was easily reflected in the company’s financial position and by the fact that it was the most visited web site in the World. Exhibit 5 2004 Direct Competitor Comparison Source: http:/O‘inance. yahoo. cam/q/ca?s=GOOG. Accessed February 7, 2005. Exhibit 1 Consolidated Balance Sheets: Guogle, Inc. (D0113: azhounts in thousands, except Par value) . -' 5 satisfies - _-r_3r__,_51.o_-§; I. 7.315743} -"-.--_._413,849 : 2443-00 7 21,635} '6' Source: Google, Inc. 2004 Annual Report, p. 68. The company made all of its revenues from contextual ads that were placed beside search results. For instance, a business owner arranged with Google to pay for clicks on its ad, to be displayed beside a Google search result any time a particular keyword was searched. A com distributor might choose “corn” as the keyword that should trigger its ad to be displayed. The business specified the number of clicks it could afford to pay for daily or weekly based on a fee that was agreed on by Google and the advertising company. Businesses were increasingly using this mode of advertising because it yielded better results as far as generating sales: Ads were relevant only to the search inquiry and were more likely to result in a sale. In a nutshell, Goo gle was one of the fastest growing companies in any industry as reflected in its revenue growth rate. The company’s 1P0 with its Wall Street buzz and the eventual tripling of the company’s stock, trading at $180, reflected the confidence that the public had vested in the future direction of the company. Financially, Google was sound. The company’s expenses were minimal because it had no inventory. Googie’s raw materials were the innova— tiveness of its technical staff. Exhibits 6 and 7 provide summarized financial information. zeitgeis- CASE FOURTEEN Google: An Internet Search Service Company It . -,i fix;msh‘avx\una\v ! I SECTIOND Industry Two—Internet Companies Exhibit I E“ (continued) 2004 2003 i .Deferlfed 111001116; taxe8,f-net . _ . I -. - _ _ ' 19,463 22,105 ' _ Prepaid'révehfic'Sharé,exp0ns€s and other-aés'cts-'_ __ 7 . 159,360 48,721 I deta1:;curferit.zis's_ets_ -. ' . . '- -- 2,693,465 _ 560,234 -- afidequipmerit,snet_;_ " ' . 378,916 188,255 " -- -' ' -- _122,818 87,442 ._ 7 '71,069.'_ 18,114 ' 11,590” _ _ mum we}: zwaxzwttaktm m\t:~4‘1r,$>: mxwwrmzm-a 168586318 311121 .I Z _ ' _ 35,493: 17,413 813,351- . $46,175 33,522 26,411 88,672 15,346 20,705 4,621 235,452 1,988 5,014 6,341 18,510 1,512 . 13,871 ‘Prefcréfitfiéfif-M LafidiDg‘ggmbéi‘ alas-A andEClass__ 700,000. and 000000311 inécembei j "1 160,866; 4114-2663 -._ _ _' '_ 62611101113j.1:1,98_7;..afigi}7;605 ii‘a‘r‘é repurchase (8612 116161016: Deccmber 31,2003 : f ' mid-Decembei31-,2004" .. _ 7 . ,267 i T-‘Additionalpa'id—ifi Capital?" " ' . ” . :' ' - ' '- '3'i24532a352 .. .i 51115101; reCcivablc from offibetlstbckholder' 7 ' '- " ' ' -Déf01r¢d-_stéck-bascd 00_niiiehsatigh- ' I _ _ _ _ “I "-'E(249.,4-70) Acéymulat'édothci compfichafisiyeinciime ' '_ -_ ' '_ [5,436 i _Rét21inédcamiugs' , . _ ,_ 7 $590,471 _ = : Total'stockholders’eqflity ,_ __ - _-'-';'_$2_,92_9.'056 : : T9131 liabilities, redeeiiiablé .édnvéijtible' prerér'réuf; .- j-r . ' ' stock warrant andsfocklioldei'sr’jgfifiity 12:: " 13,313,351 '- Saurce: Googi’c, Inc. 2004 Annual Report, p. 67. CASE FOUR'I'EEN Google: An Internet Search Service Company ate Governance I, Exhibit 8 shows Google ’s Board of Directors and the company’s executive management team. unarmin Hm: ai‘zgfiv 51sysnwem‘aunmxmx‘ow‘lLumvxlfl(swA‘evn-slnw),d+mue himlwduav)‘ Source: Google, Inc, “Corporate Infomation,“ Google web site. I: The Google Culture Though growing rapidly, Google still maintaine headquarters almost everyone ate in the Google whatever table had an opening and enjoying conversations with Googlers from all different departments. Topics ranged from the trivial to the technical, and whether the discussion was g software, it was not surprising to hear about computer games or encryption or ad servin if someone say, “That’s a product I helped develop before I came to Google.” Google’s emphasis on innovation and commitment to cost containment meant each employee of corporate hierarchy, and everyone wore J was a hands-on contributor. There was little in the way ‘ several hats. The international webmaster who created Google’s holiday log0s spent a week trans- engineer was also a licensed neurosurgeon. " lating the entire site into Korean. The chief operations rtant part of Google’s success, no one hesi- Because everyone realized they were an equally impo tated to skate over a corporate officer during a game of roller hockey. discriminatory and favored ability over Google’s hiring policy was aggressively non— experience. The result was a staff that reflected the global audience the search engine served. Google had offices around the globe, and Google engineering centers were recruiting local talent in locations from Zurich to Bangalore. Dozens of languages were spoken by Google cl a small company feel. At the Googleplex cafe (known as “Charlie’s Place”), sitting at Q _I ' 1 Management Strategy SECTION D Industry Two—Internet Companies Looking to the Future staffers, from Turkish to Telugu. When not at work, Googlers pursued interests from cross- country cycling to wine tasting, from flying to Frisbee. As Google eitpanded its development team, it continued to look for those who shared an obsessive commitment to creating search perfection and having a great time doing it.” “(414:1 swam: Nounnms ¥4=m\\|wu;m;rw:.\vr».u (i;1:‘.:.\\-;:t:.‘. Google’s President and CEO, Eric Schmidt, was committed to the continued growth of Google as a premium Internet search company while at the same time striving to further expand beyond just the Internet search—based services the company offered. The company needed to introduce new Internet-related services in order to develop a more enduring com- pany not reliant solely on Internet search technology but diversified enough to remain an enduring entity. The company also had to further develop its international popularity. In addition, Google needed to improve its general administratiVB capabilities. The pri- mary complaint leveled by prospective advertisers trying to do business with Google was the fact that its employees were a bunch of brash arrogant people who kept switching teams assigned to cases. This led to unnecessary delays and frustrating experiences when setting up business deals with the company. In 2005, CEO Eric Schmidt and his management team decided that Google needed to effect measures that would allow it to remain competitive as more big players focused on the Internet search segment. Despite the fact that Google was a leader in Internet search technology, the company was introducing a new line of services not related to Internet search. This new situa- tion placed Google in a face—to—face showdown with companies that were previously consid- ered too big to be Google’s competitors. These bigger companies, namely MSN (Microsoft), AOL, and Yahoo, were feverishly working to close in on Google’s Internet search supremacy and had made public their intentions to participate in the advertising dollars Internet search generates. Google, therefore, needed to differentiate itself from the other competitors in the Internet search services and to remain the household name with the largest market share. It had to achieve this using the immense human, financial, and technological expertise at its disposal- One alternative proposed by Larry Page, co—founder, suggested the need for Google [0 keep focusing on doing what it does best—“Internet search solutions.” He showed the 11°F! for the company to focus on its distinctive competence by continuing to develop a super-10f search engine. In essence, Google should remain a company that specialized only in developing the best Internet search engine; and focusing only on Internet search applications and how they could best be utilized to effectively advertise products and services. This would Kw!) Google on top of the pile in the Internet search segment. The benefit of this alternative was the sustained revenues fro further developing a proven Internet search engine like Google brings, advertising using contextual ads. This would allow the company to remain oping further what brings the company all of its revenues. It was a winning ffifm been proven because it brought the company sudden fame and fortune. _, This alternative was feasible because it focused on further developing Google strength—Internet search services. It focused on a path successfully trod by r 7 Internet search technology. Google’s search engine and its associated contextqfil ads ogy attracted advertisers and had been referred to as the future of adVertisiflg-V I The alternative could be successful because GOOgIe was the segment 163115 share. Despite the hot pursuit by its competitors, Google had established brand 1131'.“ m advertising that focusing on through online target focused on devel- ula that ...
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Google - CASE 14 Google: Internet Search Service Company...

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