The Basis of Googles Potential Profitability - Case Study Example

ASSIGNMENT Workshop 1 BSBWOR501B Manage Personal Work Priorities and Professional Development 19/6/12 Michele Rohrlach 234471 Abstract At a time when nearly all firms were under pressure in 2008, Fortune Magazine in 2009 reported that Google had actually raised its returns that year, citing it as the fourth “Most Admired Company in the World”. Google’s fiscal revenues in the first quarter grew by 6.2 percent followed by $5.52 billion in the second quarter, leading to an overall lead in online marketing share. An in-depth analysis of Google sheds light on the best strategy, out of the many available alternatives, that the corporation has adopted to continue thriving against poor economic conditions and stiff competition especially from Yahoo and Microsoft. The case study presents the basis of Google’s potential profitability in regard to political, social, economic and technological forces driving the industry. Google’s mission of organizing the internet’s information plus making it simply available shows how focusing on the customer can do for an organization. 1.0 Introduction Google was founded in 1998 with the aim of providing a search engine that enabled users to organize the increasing amount of information available on the internet. By the year 2000, Google’s website was decoded to 15 languages and gained global recognition for its web search-engine service. Google made public its browser toolbar in late 2000. In 2002, the company launched Google Adwords, a pricing system for billing online advertisements based on charge per-click. The company went public in August 2004 with 19,605,042 shares offered at an opening price of $83 per share unit. By the end of 2009, the company’s share price was over $600 per share. In 2006, the company released Gmail; an email accounts service followed by You Tube, a web site hosting videos. In 2008, it attained DoubleClick and in the next year the company introduced Google Docs. The company then moved into public education products. The use of Google Docs and Google spreadsheets in term papers was employed by the company to ensure increased technological application in the class room. By the year 2010, Google was a global leader in internet technology, focusing on the ways people obtained information (Fred, 2009). The company’s business approach has enabled it to be the leading and most profitable internationally. 1.1Mission, Objectives and Goals The company’s mission focuses on sorting out the information existing on the internet, making it easy to get and helpful to users. The company’s management believes that putting user needs first is the most effectual and profitable way of achieving their mission. During its existence, Google has strived to pursue a number of specific objectives. The company has always worked to provide relevant and useful search results possible via its search engine technology. Google has also aimed to be a provider of the most relevant and useful advertising tool on the internet. In line with its people-oriented mission, the company has strived to constantly advance the user experience for its products and services. To maintain a pole position in the market, the company has sought to improve its technological base and innovate in the area of information organization. To realize its goals, it has been guided by it’s mission which is based on putting the needs of the users first by offering high quality user experience which lead to increased traffic and effective word of mouth marketing of it’s services. The company’s philosophy of democracy on the web is indicated by their initial policy offering most of their services at no cost and not having any hidden charges. The main principle guiding Google’s management is a focus on people and their lives, work and dreams. Other guiding principles include the time aspect of management, simplicity in operations and products, innovation and design, planning, aesthetic value, and trust. 2.0 Google Inc’s Strategic Plan Analysis 2.1 External Environment 2.1.1 Economic Despite the World recession from 2007 to 2010, Google’s revenues internationally kept escalating annually. In 2008, international revenues amounted to 51% of total corporate revenue. Different countries carry out different accounting practices which have direct impact on financial reporting and taxation facing the company. Fluctuations in global fiscal exchange charges influenced the company’s procedure by affecting the value of receivables denominated in foreign currency. Hedging tactics to mitigate this risk are usually high-cost and reduce the company’s profitability. 2.1.2 Demographic and Socio-cultural Over half of the company’s user traffic for its services is international. Owing to the global nature of Google’s operations, the company has faced challenges which include geographic, language and cultural differences among countries (Bhatia, Deep, & Sachdeva, 2009, p. 4). Cultural considerations have affected the company’s operation in terms of web content. For instance, the company had to filter material that mocked “Turkishness” for its Turkey website Google.com.tr. Towards this end, the company’s strategy has aimed to convert its websites into different languages of the world. In an effort to adjust to the conditions of different countries in which it operates, the company had over 15 translations for its website by 2000. 2.1.3 Political-Legal Increased regulatory scrutiny affecting the industry negatively has had an impact on the company’s business as well, with this risk increasing with continued growth and corporate expansion. Regulatory steps meant to prevent industry monopoly have affected the company’s ability to consolidate and expand in the growing industry. Many laws affecting the industry had been enacted prior to the internet age and thus could not have covered the business implications and practices of the internet and computer technology. The company had to adapt to industry regulations and legal standards which differ from country to country, with government pressure leading the company to censor web content depending on location. Various US and international laws restricting distribution of material termed as harmful to children and limiting the ability of online services to collect information from minors had legal risk implications for the company, with many states passing laws relating to potential breaches of personal data. Claims on the company’s intellectual property privileges have been expensive to defend. The company incurred extra costs in defending its IP privileges for its Page Rank technology trademark and litigations challenging its IP rights. Other firms have from time to time filed claims against Google for copyright infringements stemming from some features in its websites and its products. Some of the products have faced attack too for patent violation for which it could be required to pay damages and licensing fees. Patent infringement settlements lead to higher costs and this risk limited the company’s ability to provide certain services or products, leading to loss of potential business. 2.1.4 Technology The high rate of internet growth and adoption globally has increased competitive pressure on Google from other online players while raising user expectations. More individuals were increasingly using devices other than personal computers to access the internet. Google has had to develop versions of Google web search engine technology, applications and operating systems that supported these devices, without which the business would have been adversely affected (Bhatia, Deep, & Sachdeva, 2009, p.4). Google had to develop technological strategy further to take in design of palm-held gadgets and their software to maintain customer loyalties and attract more users. Technological advancement also brought about new technological risks arising from greater sophistication displayed by hackers who could adversely affect its operations which Google had to strategize on preventing. Compared to other major market players, Google has succeeded in wadding off cyber attacks relatively well. 2.1.5 Market Environment The internet industry in which Google operates is characterized by rapid change and convergence as well as new disruptive technologies. In every aspect of its business, the company faced much competition particularly from companies dealing with online information provision and advertising. The company faced significant direct and indirect competition from customary search engines like Yahoo and Bing. Vertical engines and e-commerce websites attracted users directly to their sites without having to pass through Google. For instance WebMD for health queries, Kayak for travel queries, Monster for job queries and Amazon and e-Bay for commerce. Social networks also attracted users seeking product plus service transfers instead of looking for information by Google. Mobile applications enabled users to access information through specific companies’ stand-alone applications rather than going through traditional search engines. New and established companies offering communication, information and entertainment services’ applications and devices competed directly with Google in the provision of online services. 2.2 Internal Environment 2.2.1 Corporate Structure The company has a voted panel of governors that stand for the interests of stakeholders. This works alongside the executive management tasked with running the organization’s operations. By December thirty first, 2009, the company had a labor force of 19,835 employees. Out of this figure, 7,443 were in research/development, 7,338 in sales and marketing, 2,941 in administration/management and 2,113 in general operations. In its human resource strategy, the company strives to acquire and maintain highly skilled and talented workers best suited to work in an environment requiring constant development of ideas and new products. 2.2.2 Corporate Culture Google strived to foster an open and collaborative culture aimed at encouraging ideas development and exchange necessary for creation of new products and applications. The company’ management strategy strives to ensure transparency in decision making and operations. Employees are informed about the company’s announcements, new products and applications development before they are released to the public. Both technology and standard methods are used to convey information inside the organization. 2.2.3 Corporate Resources Marketing The introduction of software application in the classroom referring to the use of Google docs and Google spreadsheet in doing term projects has been clear and consistent with corporate mission of continued improvement of user experience in information organization. The success of the program is owed on the strategy of public education as implied in Oregon with Google application for education regarding transformation of technology. The company has ranked research and development highly with at least a third of its labor force working in this department. The Google marketing mix has worked for it in the industry towards providing an edge in marketing especially because of the loyal clients already in the network. Finance With the newly released Adwords in March 2001, Google succeeded to go public by offering 19,605,042 shares in August 2004. The opening price of the Initial Public Offer was $83 and had reached a price of over $600 in 2009 (Bhatia, Deep, & Sachdeva, 2009, p. 6). Research and Development It is clear that Google upholds Research and Development as seen in their annual budget allocations and from the number of staff deployed in the department that is over a third of total employees. Existence of professionals in the company’s executive management team who have high qualification in research and development has worked towards the company’s success. Since search engine optimization and software applications development requires advanced math, calculus and algorithms skills, the company has had to employ great minds and fund intensive research. Google has managed to be a leader in search engine optimization from its efforts and investments in Research, with a provision of up to12.8% of total revenue being allocated to research in 2007. This is in line with the corporate philosophy of centering on the user and wait for the rest to come (E-Content, n.d, 116). Operations Google is a technology based company operating on a global scale. The main business units are Administration, Research/Development, and Marketing. Owing to its internet-based procedure, Google serves client globally with over 50% of them being international. Human Resources The company’s success was strongly related to its ability to attract, maintain and grow its strong talent pool. The company strived to make sure a high level of worker satisfaction necessary for creativity and innovation to thrive. The company worked towards maintaining a globally diverse workforce with high academic qualifications and expertise in their fields (Bhatia, Deep, & Sachdeva, 2009, p. 7-8). 3.0 Analysis of Strategic Factors 3.1 Situational and SWOT Analysis 3.1.1 Strengths   Remarkable growth in the company’s revenues has been attributed to creativity and innovation in adapting to advancements in technology in the industry. Google’s highly talented workforce has a strength which ensured the company maintained a leadership position. The company has been a market leader in technology which is a key strength in ensuring that its focus on user satisfaction enabled it to attract and retain its customer revenue base and market share. The company has enjoyed continued revenue growth compared to other similar companies in the internet industry. This puts the company in a better position financially in surviving market factors and availing working capital to perform its procedures. Google’s ability to adapt to changes in its market environment and its flexibility in changing focus from one revenue stream to another is a strength which increases its chance of surviving market changes (Bhatia, Deep, & Sachdeva, 2009, p. 8). 3.1.2 Weaknesses The company’s competitive advantage is driven by the PageRank internet search engine technology. Exclusive patent rights for the technology are set to expire in 2011 which will put search engine services by other companies at the same competitive level as the company (Bhatia, Deep, & Sachdeva, 2009, p. 9). The company’s over-reliance on advertising revenue makes it vulnerable to sweeping changes on internet advertising with the advent of mobile devices which don’t necessarily require the company’s services. Growth of the internet promotes new competitive technology, more companies are competing directly with Google in offering online advertising services. 3.1.3 Opportunities Commercialization of palm-held and mobile devices presents a business opportunity for Google in the creation of innovative services compatible with these devices. In line with concentric diversification, the company has the opportunity to broaden its product range in the ICT industry to include products which can be used without internet. For instance, data storage devices and data compression formats employed in internet file formats present an avenue for broadening into the offline market segment. Google should seek to further expand its production of palm-held/mobile devices and their support software and services to keep abreast with market trends and emerging competition (Bhatia, Deep, & Sachdeva, 2009, p. 9). Emerging market trends are shifting production of electronic devices and software development to outsourcing, with production of electronic devices shifting from western countries into Asian countries especially Japan. Accordingly, the company should consider moving some of it operations to these markets to enjoy the added cost efficiency they present. 3.1.4 Threats Cyber security has been a threat for the industry as a whole and Google risks loosing its prestigious customer loyalty in the event of a successful attack on its servers. Internet access suppliers may block, degrade or charge user for access to certain Google products and services which would make users shy off owing to added cost. Alternative technologies that may not adopt versions of Google search and advertising technology would deprive the company of potential sales revenue. Legal threats accruing from direct and indirect liability exist owing to the tightening regulation on the internet industry by different governments (Bhatia, Deep, & Sachdeva, 2009, p. 9). 3.2 Review of Current Mission and Objectives Google’s mission, which is focused on customer contentment, ensures a user-oriented approach in the improvement of existing products and expansion of new services relevant to the internet market. 4.0 Strategic Alternatives and Recommended Strategy 4.1 Strategic Alternatives A strategic alternative open to Google is increasing innovation in mobile-phone and palm-held devices technologies. These devices are taking centre-stage in the ICT industry growth and have become increasingly dependent on the user. 4.2 Growth & Stability Strategies 4.2.1 Growth through Concentric Diversification Diversification has been a key feature in Google’s business approach which has permitted the company to find alternative revenue for growth through innovations and product enlargement. The goal of such diversification has been to achieve strategic market positioning and adapt to the frequently varying operating setting and consumer needs. The company has achieved internal and external diversification by generating new goods and services other than the initial search engine service. The company entered into new areas of business by purchasing other already reputable websites and brand names by building up new ones. Currently the company has registered trademarks such as Google, YouTube, DoubleClick, Adwords, Gmail, I’m Feeling Lucky, PageRank, Picassa, Orkut, Bloggerand, and Postini among other registered trademarks. 4.2.2 Stability/Profit Strategy The corporation has utilized stability strategies as evidenced by its continued focus on the internet sector of the ICT industry. There has been no change in the overall focus of the company, allowing for incremental management, innovation and upgrading of functional performances in internet services provision. Google has maintained an increasing rate of growth in profit levels which has put the company in a stable financial position compared to other players in the industry (Fred, 2009). 5.0 Conclusions and recommendations Google to a large extent has made progress and keeps on to work towards realizing its strategic plan of concentric diversification in keeping with company’s unique style of basing service on relevance and usefulness of results and features. Marketing strategies and brand name awareness have continued to set Google apart from its competitors. However, Google must look into fostering further product diversification. The company should introduce products that are also aimed at the offline ICT industry to maintain its competitive advantage without changing industries altogether. Google faired rather well compared to other companies in the same industry in surviving the recent world recession of 2007 to 2010. The company has enjoyed growing annual profit margin and sustained high dividend returns for its stakeholders. in line with the stability/profit strategy, Google should look into achieving higher efficiency operating procedures to lower production costs even further than its competitors’ by considering outsourcing some of its operation to emerging tech markets. Works Cited Fred, D. (ed.). Strategic Management; Concept and Cases. New Jersey: pearon education, 2009. eBook, available from http://buduson.files.wordpress.com/2012/02/strategic-management.pdf Bhatia, A., Deep, G. & Sachdeva, A. “Strategic Analysis of Search Engine Giant: A Case Study of Google Inc.” In International Journal of Computing & Business Research, No. 2229-6166. India: Online Journal, 2009. eBook, available from http://www.researchmanuscripts.com/isociety2012/55.pdf E-Content. “Case Study-Google, Inc” In Planning Intellectual Property for Marketing Strategies, Chapter 4. eBook, Available from http://nccur.lib.nccu.edu.tw/bitstream/140.119/33884/1/61010101.pdf Read More