Introduction
Google was established by Stanford University graduates of computer science Larry Page and Sergey Brin. The two aimed to develop a search engine. They started the company with the aid of angel investors and financial aid acquired from family and friends. The firm steadily grew over the years becoming the leading Internet search corporation in 2013. The company has risen to take a competitive position in the search engine industry holding a 97% market share of searches undertaken through mobile devices and 67% of searches performed on work and home computers (Fox, 2012).
The company’s mission is to arrange the world’s data and make it readily obtainable and functional globally. It has a number of products that are offered to the international market such as search tools including Google search as well as provides advertising services. It has its business ventures including licensing fees on companies that use its search engine on their websites. Google has its scope focused on providing a universal base for the search engine and offering a platform for advertising. The company has endeavored to expand its operations into international markets such as its initiative to venture into China and Russia as emerging markets from which it gained revenues in 2012.
The company’s initial strategy when it was established, at a time when it had only four employees working from a friend’s garage, was to channel its growth as a search engine handling several search queries per day (Fox, 2012). Today the corporation has lined itself with strategic acquisitions aimed at placing Google on the position of the lead search engine and advertising forum.
Strategic Issue
Summary
The company has several issues concerning its strategic directions. Google has managed to grow in the search engine industry becoming a leading player in it. That is why it needs to identify the strategies that have favored its growth and focus on their effective implementation for the business’s continuous development. Moreover, the corporation experiences severe competition from other search engine firms such as Microsoft (Fox, 2012). The company is facing the issue of identifying strategies that give it a competitive advantage such as through product differentiation. The corporation has undertaken several acquisitions as a strategic step in its bid to grow and compete with its rivals. In this case, Google is presented with the issue of identifying firms from which it will gain high revenues through purchasing them. The company also deals with the aspect of product differentiation strategy and a necessity to identify how to undertake the strategy to introduce or improve the products that continuously attract the global market as well as add into its competitive advantage over its rivals.
Google is presently faced with the issue of remaining relevant in the market while also competing with its rivals. Should Google venture into further product differentiation to increase its revenues? Should the company introduce new business ventures other than advertising and search engines? What are the major firms that pose a major threat to Google? How can the company maximize its market share? Should the corporation be involved in further acquisition strategies? Will its alliance with other firms aid in its growth and provide it with a competitive advantage?
Strategic Issue Statement
What strategic direction should Google undertake to ensure that it becomes the main advertising and search engine firm without facing losses from its rivals and venturing into the global market with products that satisfy the consumers’ wants and needs?
External Environment
Google’s Five Forces Model
Porter’s Five Forces Analysis
The five forces affecting a company in any market include supplier bargaining power, the threat of substitutes, buyer bargaining power, competitive rivalry and the threat of new entry. The analysis of these five factors will exhibit the attractiveness of making a profit in the search engine industry (Fox, 2012).
Competitive rivalry involves the competition between the companies present in the industry. It is indicated as a strong force in the model. The increasing demand for different products in the search engine industry poses competition for Google as the rival firms strive to dominate the line of business. Such competitors include Yahoo, Microsoft, and Baidu. Each of the firms develops strategies to obtain a competitive advantage over the others such as product development and product differentiation. The rate of changing from one search engine business to another is relatively low (Montgomery, 2008). Google faces competition from these industries as they develop new products to serve the growing market as they all strive to venture into global markets. It has to ensure that it remains innovative constantly by creating new services that serve the market to help the firm to gain a competitive advantage over other companies. The competitive rivalry is thus a fierce force for Google.
The threat of substitutes is a force that involves the introduction of substitute products outside the industry. It is indicated in the model that it is a moderate force. The field is constantly presented with new products from the major firms. New offerings that may be brought into the segment by other companies from outside the industry may attract the current customers to them. The result will be the loss of the current market for these new products. Google encounters such a threat from social networking sites which are preferred by the advertisers due to their high face time with users. It, however, competes with these substitutes by also introducing new social networking sites such as Google+ (Montgomery, 2008). The switching costs for these social networking sites are not high for users thus increasing the threat of this force. The threat of new substitutes is, therefore, moderate as firms in the industry have to struggle to make their products relevant to the line of business and compete with these new substitutes.
Buyer bargaining power is another force that entails the bargaining power of buyers for products. It is indicated as low in the model. In this industry, the companies have to increase the preference for their products among consumers since all of the former offer almost similar products and have to focus on their costs. Google offers low prices as compared to other firms, and the buyers are in a weak position to bargain therefore making this force low in its impact on the business. The consumers have high bargaining power for other companies, which do not have low prices like Google and the switching cost to other corporations is low. The buyer bargaining power is, therefore, a low force for Google (Montgomery, 2008).
The threat of new entry is another force that involves the entrance of new firms in the search engine industry. It is indicated as a low force in the model. Major firms, including Google and Microsoft, dominate this industry. These companies have strong brand images that they have built over the years, and the competition in the market is usually between the present firms. New businesses trying to enter this industry have to gain popularity and compete with these leaders that have been present in the market for long periods and have significant client bases thus high market revenues. They have to invest large capital to succeed in competing with these companies. The threat of new entry does not pose a great risk for Google as new firms have to struggle and compete with such huge businesses to gain recognition in the market.
The supplier bargaining power is stated as low in the five forces model for Google. Supplier power involves the provision of resources such as labor and raw materials. In the search engine industry, each of the companies has its sources of supplies. The firms can access various suppliers of their products, for example, wireless phone manufacturers to develop phones with the Internet accessibility. A large number of suppliers also means that switching from one supplier to another does not require high costs as the suppliers are readily available (Montgomery, 2008). The availability of suppliers and Google’s ability to manufacture some of the products indicates this factor as a weak force influencing the company.
Key Success Factors
Key success factors are the elements that enable a company to be successful and competitive in its market. Google’s success is motivated by several key success aspects including availability of physical resources such as finances, effective customer relations, and having a strategic focus.
The availability of finances has been essential in ensuring that Google remains at the top position in the search engine industry. The company’s founders initially acquired funding from outside investors, their families and friends. The funding provided that the business was started and presented in the industry as a search engine firm. The company received high revenues from its initial trading in the stock market enhancing its growth. The corporation was able to invest in advertising opportunities from which it received further profits that allowed it to continue marketing its products. The funds available from its revenues enabled the company to undertake several strategic directions to enhance its growth such as horizontal integration and product development. The product development strategy involved the introduction of several services such as Google+, Google TV and Android system on the market. The availability of finances further enabled it to employ the acquisition strategy to encourage its expansion such as its purchase of YouTube and DoubleClick firms that maximized its returns from advertising. It also acquired Motorola Mobility which helped it to boost its sale of smartphones. The availability of finances enabled the company to undertake the product differentiation strategy where it offered cheaper prices for its services such as Google Apps as compared to the prices of its competitors and this further provided it with a competitive advantage. It had enough funds to undertake this strategy and was able to receive high returns. For Google, the strategic implication for achieving this success aspect would be to continue identifying strategies that allow it to receive high returns that would further enable the company to continue implementing these strategies.
Having a strategic focus has been a key success factor for Google. The company rallied its resources in strategies that it purposed to implement such as product development strategy using which it developed services that were needed in the market. Having a strategic focus enabled the corporation not to deviate from its set missions and avoid using resources wastefully. For example, it focused on its acquisition strategy, such as purchasing Motorola Mobility which allowed it to increase its sales of smartphones that, in its turn, made it able to garner a profit of more than $4billion through the sale of smartphones and tablets fitted with its Android system. Its focus on the horizontal strategy enabled it to acquire firms such as YouTube and DoubleClick that maximized its revenues from advertising (Montgomery, 2008). The strategic implication for achieving this success factor would be that Google should always identify the strategy that it aims to undertake and implement and avoid deviating from it to ensure that it achieves the goals set.
Customer relation is another key success aspect for Google. The company has pinpointed its clients’ wants and needs and provided them with services that satisfy them, for example, its product AdWords that meets the consumers’ needs for advertising. The corporation’s success has been accredited to its ability to identify the clients’ in from the search engine industry such as developing the Android system as a search feature for smartphone users the number of which has grown in the market (Pahl & Richter, 2009). Customer relations also enabled the company to undertake several strategies such as market development. The corporation analyzed the clients’ needs through which it developed new products to meet them. For Google, the strategic implication for achieving this success factor would be to improve its customer relations that would enable it to identify consumer preferences and thus create products that satisfy the clients’ needs that will eventually increase its market share.
Company Situation
Financial Analysis
Profitability ratio. Return on equity (ROE) and Return on asset (ROA). On the one hand, the ratio of ROA decreased from 0.14 to 0.12 between financial year 2013 and 2014. Thus, the profitability of Google from the assets for the specified period reduced. It is a not good sign for Google. On the other hand, the ROE grew from 0.14 to 0.16. It is a good sign for the shareholders and investors.
Liquidity ratio. Current ratio. It grew from 4.58 in 2013, to 4.8 in 2014. It shows that Google developed it ability to pay its short-term obligations.
Quick ratio. In 2013 and 2014, the ratio was 3.69 to 3.84. This means that the firm strengthened its possibility to settle short-term abilities by liquidating its assets to cash.
Leverage ratios. Debt on equity ratio. It plunged from 0.6 to 0.5 revealing that the firm reduced the number of investors and creditors in 2013 and 2014 respectively. Therefore, Google has the ability to make faster decisions since it will not need their view.
Efficiency ratio. Asset turnover ratio. During financial years 2013 and 2014, the proportion was 4.23 and 3.27 respectively. This shows that Google uses it assets to create revenue for the business.
Inventory turnover ratio. The ratio was 7.08 in 2013 and 6.86 in 2014. This shows the firm is not using its inventory in a good way. However, little improvement is seen in the ratio.
In brief, analyzing Google’s ratios shows that it is in a good financial position in the market since it is making profit and uses debts at the minimum rate. Therefore, the firm has a beneficial standing to compete in the global arena.
SWOT Analysis of Google Company
Strengths
Robust brand image. Google enjoys a robust brand image that has enabled it to be recognized in the global market. Regardless of customers’ country locations, many people are aware of Google’s presence in the search engine industry, as it has become a key Internet search engine that they use in their daily lives. Through this strong brand image, Google has been able to gain a competitive edge in the global market as its brand differentiates it from other competitors. In addition to this, its strong brand image enables it to profit from customer loyalty since the brand acts as a catalyst of consumer choice. Thus, its brand image is the company’s key strength that has contributed to its growth since it has managed to expand in new markets where it has been able to win a wide consumer base because of the existing clients being aware of its brand.
Wide service portfolio. Another key strength of Goggle is its broad range of services offered from which it can augment its profitability and revenue (Pahl & Richter, 2009). Apart from the online advertising services that it provides, the company also proposes various applications and platforms such as Google Book Search, Google Play, Google Apps, and Google Chrome. Additionally, its product portfolio consists of YouTube, Gmail, Google Earth, Google Video, among others. Through provision of this broad service portfolio, the company is able to attract and retain even more customers, hence maximizing its market share and profits.
Strong research and development capabilities and advanced technological infrastructure. The company’s strong research and development capabilities coupled with its advanced technological infrastructure serve as key strengths as the corporation has been able to implement innovative technologies as well as deliver high-quality products and services that meet diverse customer desires and expectations. Through the research and development activities, the business got a possibility to focus on the improvement of its services’ performances, and the strong infrastructure that it enjoys has led to the enhancement and upgrade of its search algorithms that ensure that Internet search is faster and more resourceful to the clients.
Strong market position and global dominance. Another key strength of Google Company is its strong market position in the global market that has enabled it to gain global dominance (Pahl & Richter, 2009). Resulting from this, the corporation has been able to enjoy massive profits because of the revenues it gets from its services such as advertisements that can reach a wide market audience. Through this, the company’s customer base has continued to expand on a global scale enabling it to gain a competitive niche over other search engine firms.
Financial strength. The financial stability and performance of Google facilitates it to maintain a strong stand in the global market (Pahl & Richter, 2009). Through the advertising revenues that it gains, the company has managed to succeed financially and achieve a strong financial base which other firms have not been able to achieve. Thus, its financial strength plays a key role in its success, and contributes to its shareholders’ confidence.
Weaknesses
Lack of compatibility with next generation devices. A key weakness that Google faces is the fact that it is not compatible with many computing platforms such as mobile devices apart from Android. As a result, it loses out on profits that it could have otherwise gained hence this causes dents in its financial status.
Overdependence on advertising. Google’s success is largely attributable to the revenues that it gets from advertising. However, this overdependence on advertising serves as a weakness as the firm is not able to gain financial success without it. As a result, the company becomes vulnerable to any spending patterns of advertisers who may be affected by adverse macroeconomic conditions that may force them to cut back on their expenditures. Thus, the corporation ends up getting losses due to these low spending as the advertisements serve as the primary backbone of its success (Peterson-Drake & Fabozzi, 2012).
Huge debt. Even though the company rides on its financial success, it still has a weakness in its huge debt that remains a vital concern of its the management. As a result, the debt the corporation incurs causes high-interest expenses that influence its profitability. In addition, the company’s business operations become affected, and its expansion plans become constrained as raising funds from the market under favorable terms becomes difficult.
Opportunities
Penetration of Android operating system. Android-based smartphones are receiving strong acceptance in the global market thus this provides the company with the opportunity to grow in the market. Through these Android phones, users are able to download games and apps from Google Play, hence enabling the corporation to gain even more profits. Thus, by fully penetrating the Android market, more applications may be created for the Android operating system, and this may lead to it becoming a dominant platform for mobile phones. By taking advantage of this opportunity, the company can receive the means to improve further its business operations on a global scale hence enhancing its profitability.
Cloud computing. Cloud computing remains a major opportunity for Google since it is already a popular service providing storage solutions (Peterson-Drake & Fabozzi, 2012). Through cloud computing, Google will be able to enjoy various benefits and so will its customers. The advantages that cloud computing provides include the achievement of economies of scale, globalization of the workforce since people from all over the worldwide have a possibility to access the cloud, reduced spending on technology infrastructure, reduction of capital costs, and improved accessibility. Additionally, projects can be monitored more effectively, there is improved flexibility, and less personnel training will be needed. Thus, the Google Cloud platform serves as a vital opportunity that Google can use to enhance its productivity and success in the global market.
Diversification into non-advertising business. Google is set to benefit from focusing on non-advertising business models. Products like Google Books, Google Maps and Google Play provide many opportunities for the company to expand its offerings to the consumer market. Through diversification, the risk of overdependence on advertisements is mitigated, as the corporation will be able to gain revenue from other sources to ensure its continued profitability and success. Thus, Google Play and other similar products provide a significant opportunity on exploiting which the company can focus.
Expansion into new markets. New markets provide a key opportunity that the business can use to ensure larger profit margins. By expanding into new markets like Africa, it will be able to gain even more global reach, and increase its customer base. Additionally, its revenues will grow since advertisers in these countries will be keen to use Google to advertise their products on a larger scale (Peterson-Drake & Fabozzi, 2012).
Social networking site (Google+). Google+ provides an opportunity for Google to to win more users and enhance its stand in the global market. The world has now become a social place where more people are networking through the Internet. Society’s constant use of social network platforms such as Facebook has seen the rise of active users and even more advertisements are placed on these sites. Google can take advantage of this, too, by marketing its social platform Google+ to ensure that more people are using it, and this will translate to more advertisements hence more profits for the company.
Strategic acquisitions. Another opportunity that the corporation can exploit is the acquisition of firms that will enable it to obtain more patents hence enhancing its growth and giving it means to compete successfully. Its purchase of Motorola in 2012 allowed it to obtain various patents that contributed to its growth. Thus, future strategic acquisitions provide vital opportunity for the company to expand in future.
Growing into electronics industry. The electronics industry provides Google with the opportunity to introduce more diverse products for broad customer groups to meet their ever-changing needs and trends. As a result, there will be tighter integration of the company’s software services in addition to diversified income.
Threats
Security breaches. Google’s products and services involve the storage and transmission of customers’ personal information. Security breaches because of hackings and people’s malfeasance pose a threat to the company (Peterson-Drake & Fabozzi, 2012). Hackers may be able to permeate the corporation’s network security and misappropriate users’ confidential information, and even cause system shutdowns. As a result, the company may incur substantial expenses needed to address these problems caused by security breaches. Additionally, the business may lose key customers who may no longer trust its credibility, and may end up having a damaged reputation.
Foreign currency risk. Google operates in diverse parts of the world and is therefore exposed to fluctuating foreign exchange rates. The company usually reports its financials in the US Dollar, and thus its revenues from other parts of the world are exposed to the dollar’s volatility against other currencies (Peterson-Drake & Fabozzi, 2012). Thus, economic downturns may pose a risk to the foreign currencies exchange rates that poses a risk to the earnings of the corporation.
Intense competition. Google operates in a highly competitive market; hence, this aspect has an effect on the firm’s business and operations. Competition intensifies with the entry of new competitive companies that may bring in new technologies, services or products that can pose a threat to the existence of Goggle’s products (Peterson-Drake & Fabozzi, 2012). The key competitors of Google are Microsoft’s Bing, Apple, and e-commerce sites like eBay. They compete for the same clients in the global market, and their introduction of new products or services that are superior to Google’s may cause Google to lose its market share due to customer attrition. Social networking sites such as Twitter and Facebook also pose a threat to Google as these sites achieve heavy traffic due to the large number of users. As a result, Google has to implement new strategies that will ensure that it continues to possess a large customer base or else it may be wiped out of the market.
Reduction in online spending. Another threat that Google faces is the reduction in online spending by advertisers. Given that there are diverse platforms through which advertisers may want to promote their products and services, Google encounters the threat that these advertisers may stop using Google’s services and opt for other sources. As a result, the company is bound to experience losses, and this proves to be detrimental to its continued success (Peterson-Drake & Fabozzi, 2012).
Lawsuits. Potential lawsuits relating to patent and trademark rights pose a threat to the company’s success. This is attributable to the fact that these lawsuits come with heavy costs, and this may cause a dent in the corporation’s finances. Monetary damages that the company may be forced to pay also serve as a threat to its financial success.
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SWOT Analysis |
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Strengths 1) Robust brand image 2) Broad range of service portfolio 3) Strong research & development capabilities and advanced technological infrastructure 4) Strong market position and global dominance 5) Financial strength |
Weaknesses 1) Lack of compatibility with next generation devices 2) Overdependence on advertising 3) Huge debt |
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Opportunities 1) Penetration of Android operating system 2) Cloud computing 3) Diversification into non-advertising business 4) Expansion into new markets 5) Social networking site (Google+) 6) Strategic acquisitions 7) Growing into electronics industry |
Threats 1) Security breaches 2) Foreign currency risk 3) Intense competition 4) Reduction in online spending 5) Lawsuits |
Recommendations
Strategic Issue
What strategic direction should Google undertake to unsure it domination as the main advertising and search engine firm without facing losses from its rivals and venturing into the global market with products that satisfy the consumers’ wants and needs?
Strategy Recommendations
Generic strategy recommendations. Google should focus on its product differentiation strategy (Pahl & Richter, 2009). The company should strive to develop services that provide it with competitive advantages over its rivals. The corporation would be required to differentiate its products in certain ways such as through cost differentiation where it rates its product at lower prices as compared to its rivals and also through the development of unique features. The company will have to ensure that it identifies its customers’ needs so as to develop services that would satisfy them. The corporation will have to ascertain that its staff have the required technical knowledge and are highly innovative so as to effectively undertake the product differentiation process. The company will have to set aside enough finances to ensure that costs for product differentiation are met.
Grand strategy recommendations. The company should focus on its product development strategy (Pahl & Richter, 2009). Modification of its services will provide the corporation with competitive advantages over its competitors and increase its revenues. The company should incorporate new ideas to ensure that the strategy is implemented.
The corporation should also focus on the strategic alliance strategy. Google should identify firms with which it will be profitable to cooperate and form partnerships. The alliances formed will introduce Google’s products to new markets thus increasing its revenues and further offering it competitive benefits over its rivals. The company should ensure that it engages and invests in partnerships only with the firms that guarantee high returns to it. Google should be confident that the money it spends to form these alliances will receive high returns in the market (Pahl & Richter, 2009). The company should also ensure that it can gain from the partnerships not only acquiring revenues but also in other ways such as obtaining access to new technology that will aid in the production of new services.
Additionally, the corporation should focus on the market development strategy. It should identify new markets and strive to enter into the global market to increase its returns. The market development strategy will provide the company with new avenues to introduce its new products that will satisfy the changing needs of consumers. The business should identify markets that will increase its revenues and invest its finances in markets from which it will gain maximum returns. The company should set its budget to include the costs incurred from this strategy.
Objectives
The company should set objectives to undertake these strategies. In the product differentiation strategy, the performance goal that should be set will help to evaluate how well the new or modified products are received in the market (Pahl & Richter, 2009). The corporation should also set the objectives of identifying the number of sales of the services and the maximum number of sales it intends to achieve in comparison with its competitors. Additionally, the company should set a performance goal for the product development strategy that is to monitor the number of sales of the services. The firm should also plan the number of sales it intends to receive from the products. For the strategic alliance strategy, the company’s performance objective should be monitoring the revenues earned from the cooperation. It should aim at gaining more profits from its partnerships and accessing new markets. It should set performance goals for the market development strategy that will include monitoring sales of the products in the market and intend to receiving returns higher than costs used to venture into new markets. The company should also target on setting a goal to get convinced that the amount of sales through these strategies is higher as compared to the previous years.
Strategic Justification
Strategies that will not be effective for Google include the horizontal integration strategy. In this strategy, the company faces the risk of incurring major losses as it may acquire firms that do not lead to it gaining maximum returns, which are higher than the costs incurred for purchasing those businesses. However, such an option of horizontal integration can be useful in, for example, a case of strategic alliance strategy employing through which Google can terminate its partnerships with companies with which it does not earn high returns.
The corporation will gain from the recommendations mentioned because they provide it with the means to maximize its returns and attain a competitive advantage over its rivals. Though high costs may be incurred while using the recommended approaches, the growth of the business is ensured as the recommendations provide different avenues for profit maximization for the company.
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