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Structure of the Case
Page to wonder what Google would look like in five years.
A historical overview of Google follows, focusing specifically on founders Larry Page and Sergey
Brin. Page and Brin’s collaboration began at Stanford in 1995; this partnership eventually led to the
incorporation of Google in 1998, to venture capital investment, to the acquisition of a professional man-
ager as CEO, and ultimately to profitability in 2001. Google’s 2004 IPO and 2014 stock split reinforced
attracted increased competition. Consider Bing, for instance. While Bing has a lower overall market
share of search in the U.S., it targets travel and shopping or search that pays.
In addition to increased competition, Google’s product successes have also come at the expense of
other services. For example, Google’s move into maps beginning in 2004 enabled user location track-
ing and made available more relevant advertising. However, the success of this service led to Apple’s
Facebook, Facebook has become the primary social network. Google’s current social network offering
is Google+, which is now the fifth most popular after Facebook, Twitter, Instagram, and Pinterest. All
of these services are “free” to consumers with revenue coming from advertising, the next topic of dis-
cussion in the case.
Google Inc.
TEACHING NOTE
Professor Frank T. Rothaermel, Research Associate Christopher K. Zahrt, and Professor David R. King prepared this case from public sources.
MHE-FTR-035
1259420477
REV: MAY 7, 2015
2
Teaching Note — Google Inc.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent
of McGraw-Hill Education.
Ninety percent of Google’s revenues comes from advertising, and the competition for advertis-
ing dollars is on the rise. Google began generating advertising dollars in 2000, when it started selling
advertisers “key words” in a program called AdWords; advertisers paying for this service would be
given more prominent display in search results. In 2003, Google expanded to provide Adsense, a ser-
vice that displays advertisements that match search results. In 2007, Google acquired Doubleclick to
provide video advertising through third-party websites; this acquisition allowed Google to profit from
its 2006 acquisition of YouTube.
With increasing competition for advertising dollars, Google started relying on channel protection,
which moved the company into mobile (Android) and desktop (Chrome) operating systems, as well as
fiber and wireless Internet service—this was the company’s attempt to protect its advertising revenue.
Google competed in this area with applications that used data from different devices. However, in
2015, Apple entered the wearables category with its Apple Watch. One limitation of wearables, though,
including with the Apple Watch, is battery life. Such limitation has inspired Google to invest in mul-
tiple projects focused on improving batteries.
Teaching Note —Google Inc.
Suggested Questions
AnAlysis: Focus on internAl And externAl environment
1. Perform SWOT analysis for Google that identifies alternatives for the company.
2. Apply a PESTEL analysis to Google; what does Google need to consider?
FormulAtion: Focus on Business,
corporAte or GloBAl strAteGy
3. Compare and contrast Google’s smartphone/tablet strategy with that of Apple’s.
4. What type of diversification is behind Google’s corporate strategy?
implementAtion: Focus on recommendAtions
And How to execute tHem
5. What are the sources of revenue for Apple, Google, and Microsoft, and how does that impact their
competition?
Suggested Answers
AnAlysis: Focus on internAl And externAl environment
1. Perform a SWOT analysis for Google that identifies alternatives for the company.
Google’s Strategic Alternatives: Multiple ideas are possible with some alternatives including:
1. Form an alliance with other firms to begin setting the standard for the Internet of Things (match
weakness and opportunity).
Teaching Note — Google Inc.
of McGraw-Hill Education.
a. http://time.com/3677301/google-lobbying-comcast/
b. http://www.washingtonpost.com/politics/how-google-is-transforming-power-and-
politicsgoogle-once-disdainful-of-lobbying-now-a-master-of-washington-influence/201
4/04/12/51648b92-b4d3-11e3-8cb6-284052554d74_story.html
5. Divest instead of mothballing unsuccessful products. Google is now so big that many prod-
ucts and services that do not meet its targets could be viable if left on their own. Google often
ends up killing products it acquires:
6. Invest in employees.
a. GoogleEDU for training of employees: http://www.wsj.com/articles/SB1000142405270
2303410404577466852658514144
2. Apply a PESTEL analysis to Google; what does Google need to consider?
political—Increased threat of government regulation. The European Union has announced that it
intends to seek remedies for Google favoring its products and services in search. Google has also faced
problems in China over censorship, giving rise to Baidu, as well as a charge of “net neutrality” in the
United States.
legal—In 2014, Europe also passed a law giving people the “right to be forgotten.” As more informa-
tion becomes available online, this concern is likely to spread and put Google in the middle of privacy
and transparency interests.
FormulAtion: Focus on Business,
corporAte or GloBAl strAteGy
3. Compare and contrast Google’s smartphone/tablet strategy with Apple’s.
Though both are technology companies that largely focus on consumers (compare), Google and
Apple largely take mirror image approaches to smartphones and tablets (contrast).
Teaching Note —Google Inc.
Google provides its Android operating system at two levels: free (adopters pay licensing fees for
patent infringement to Apple and Microsoft) and paid to have access to other Google services, such
as Maps and Play. Software represents a significant cost to smartphones and providing Android as
an open source reduces those costs to phone/tablet manufacturers in order to increase adoptions.
Increased adoptions give Google increased mobile search and advertising revenue. Essentially, this
Note: Additional resources for answering this question appears in a companion case titled “Apple,
Inc.”
4. What kind of diversification is behind Google’s corporate strategy?
Google gets 90 percent of its revenues from search advertising, making it a dominant business.
However, it appears Google is trying to become a related-constrained business that shares competen-
cies in products and technology by continuing to shift its corporate portfolio through a combination of
implementAtion: Focus on recommendAtions
And How to execute tHem
5. What are the sources of revenue for Apple, Google, and Microsoft, and how does that impact their
competition?
Apple gets its revenue primarily from selling hardware. It mainly sells standardized hardware that
enables it to keep costs low, but at premium prices, giving it large profit margins compared to com-
petitors such as Samsung. While it is enjoying greater acceptance by corporations, Apple has largely
focused on consumers.
Teaching Note — Google Inc.
of McGraw-Hill Education.
every two years implicitly making Microsoft’s operating system revenues similar to a subscription.
Combined with the move to mobile where Microsoft has a limited presence, reduced revenues for
operating systems has created problems for Microsoft. In 2015, Microsoft will release Windows 10,
which will be continually updated and likely will collect revenues using a subscription. Microsoft has
had limited success with diversification into hardware with its Xbox game system and Surface tab-
let. Microsoft has historically focused on sales to corporations.In considering the competition among
Apple, Google, and Microsoft, the interests of the firms are increasingly coming into conflict. However,
Google likely has an advantage in that it can continue to receive revenues and remain profitable from
advertising and afford to give away operating systems (part of Apple’s hardware and Microsoft’s main
source of revenue). It could also provide hardware, such as phones, at discount prices. This depends
on Google not losing its advertising revenues to Apple’s iAd or Facebook.
Note: For a good article focused on this question, see: http://www.zdnet.com/article/apple -google
-microsoft-where-does-the-money-come-from/.
Additional Resources
1. https://www.youtube.com/watch?v=CqSDWoAhvLU (2:52). “A First Drive.” May 27, 2014.
Video showing people talking about riding in Google’s car.
2. https://www.youtube.com/watch?v=DVwHCGAr_OE (1:32). “Google Year in Search 2014.” A
short video of things that happened in 2014, summarized from what people searched.
3. http://www.bloomberg.com/news/articles/2015-02-11/google-riles-silicon-valley-by-exposing-
4. http://fortune.com/2015/01/15/glass-to-exit-google-x-report-to-nests-tony-fadell/ (2:38). “Nest’s
Tony Fadell.” A video of Nest’s founder Tony Fadell discussing how its thermostat is different.
5. http://www.ted.com/talks/larry_page_where_s_google_going_next?language=en (23:30).
“Where’s Google going next?” TED interview with Larry Page.
6. https://www.youtube.com/watch?v=f_eiMKp4QW8 (6:53). “Inspiring Google story—Larry
Page.” Larry Page discussing risk and failure in the decision to found Google with Sergey Brin ver-
sus completing PhD at Stanford.
Edwards, D. (2011), i’m Feeling lucky: the confessions of Google employee number 59, new york: Houghton
Teaching Note —Google Inc.
7
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent
of McGraw-Hill Education.
deal with challenges and competition. Anyone interested in starting a business or being a more effec-
tive manager should read this book. It is also written in an enjoyable prose.
Contact your local representative from McGraw-Hill Education (http://shop.mheducation.com/
store/paris/user/findltr.html) for information about access to financial analysis spreadsheets.
Teaching Note — Google Inc.
ExhIbIt tN-1 SWOT Analysis of Google, Inc.
Strengths Weaknesses
Brand—Google’s name is synonymous with Internet search.
quickly. Additionally, Google continues to improve its core search
product . . . most recently to prioritize web pages that can be
viewed on mobile devices.
Balance between internal/external development—While
50 percent of new products. Google also scans its environment
and acquires companies with innovative products, which helps to
Nest (2014) for Internet of Things (thermostat)
Experienced leadership—Bringing in Eric Schmidt with a degree
in computer science and experience at Sun Microsystems, and
Novell as CEO and retaining him as executive chairman provides
stability and perspective.
Employee turnover—Senior executives went to Facebook (Sheryl
Sandberg) and Yahoo (Marissa Mayer).
the Top Five of U.S. firms, see: http://en.wikipedia.org/wiki/
List_of_public_corporations_by_market_capitalization.
Android Open Source: Providing Android as open source limits
Google’s control of its software, and it invites malware and
Infrastructure investment—The growth in search and the need
a Google car.
Teaching Note —Google Inc.
ExhIbIt tN-1 (continued)
Opportunities Threats
Wearables ($20 billion by 2017)
Home network standard and devices ($12 billion by 2017)
world do not use the Internet: http://en.wikipedia.org/wiki/
Global_Internet_usage.
Expand business customers—Decreased reliance on consumers
Android, etc.)
Others:
Robotics?
Artificial Intelligence?
2014, Facebook’s ad revenues grew 65 percent compared to 17
percent for Google (The Wall Street Journal, 2015). Additionally,
Apple, Microsoft, Yahoo, Twitter, and others are competing for
Baidu having a dominant search position in China. This resulted
from Google temporarily pulling out of China in 2010.
this was formalized in Europe with a law giving people the “right
to be forgotten.”
Security—Any breaches, malware, or other problems could hurt
