978-1259913747 Google Inc Case

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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

Teaching Note — Google Inc.

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 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.

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