Google and The Profile of Search Engine Industry - Assignment Example

1. Discuss competition in the search engine industry. Which of the five competitive forces seem strongest? Weakest? What is your assessment of overall industry attractiveness? Search Engine Industry Search engine industry can be characterized as dynamic and hypercompetitive in terms of technology improvements and innovations. There exists a strong desire among competing companies to alter the current platform of search engine through better technology or wide product/service offerings. Major players are Google, Yahoo, MSN, Ask Jeeves, and AOL/Netscape Main focus of competition and end goal primarily is to provide the most relevant search results in the least possible time. However, customer needs are constantly evolving and they lately want to get additional frills aside from getting only relevant search results Porter’s Five Forces Intense rivalry among existing competitors is perceived to the strongest among different forces. Case in point 1: Microsoft spend US$ 100 million and 20 months to compete for effectively against Google’s search engine Case in point 2: Yahoo inked partnership with Inktomi to replace the Google as their partner in search engine. Ask Jeeves did offer paid inclusion program which allowed advertisers to include their URL among search results. This entirely improved Google’s search engine capabilities. Connected with intense rivalry are the changing customer needs/wants thus they can be equally stronger force to reckon with in this industry These rivalries coupled with their different strategies, goals, and objectives will greatly affect the parameters and way of doing business in search engine industry. Hence, might create rivalry shift due to intense rivalry and technological advances. Weakest is Potential Threat of New Entrants Established or major competitors with strong product differentiation and backing like MSN, Yahoo, AOL/Netscape are already on board in this competition. Hence, it will alert potential newcomers to size up and determine if they can match these companies in terms of capital requirements and experience. Expected retaliation from established competitors can be a high entry barrier given the cutthroat nature of the competition within this industry. High barriers to entry in terms of lack of proprietary technology. Case in point: PageRank technology of Google is still the standard and most relevant search technology in the industry Overall Market Attractiveness Search engine industry is very attractive in terms of revenues but may prove to be not very lucrative in short term Industry size is about US$ 11.8 billion as of 2003 (sales figures lifted from Google and other leading competitors Ask Jeeves, Yahoo, MSN, and AOL/Netscape) This market size is just a fraction of the bigger industry if other leading internet companies like Amazon.com and Ebay are included in the analysis. Hence, the US$ 11.8 billion size can be considered as the floor or minimum The intense competition, however, demands more improvements and more developments with shorter life cycles. This can significantly erode the profitability of the firm for companies like Google must allocate big resources in research and innovation in order to capture the general market. 2. How is the search engine industry changing? What forces seem most likely to bring about major change to the industry within the next three to five years? Convergence is the significant factor in the changing search engine industry. Providing highly relevant search results will no longer be the best talking points. In the long run, it will be considered as standard in the industry. The emerging challenge is how to lump different services around the search engine. Case in point: MSN to incorporate search capabilities to MSN Encarta, MS Outlook, and Internet Explore. Another, Google is integrating other systems like Froogle, Gmail, and Blogger under the blanket search engine. The idea is to be a one-stop shop that will cater to majority of internet users. It means that one need to go to Google to make some preliminary search on a product then go toAmazon.com to buy a book then to Ebay to buy used mp3 players. Instead, net users need only to visit Google site and there he or she will find direct links to emails, online shopping, sports and news update. Major forces of change are customers and the intense competition related to this. The growing customer base will define the new or expanded definition of search engine. Hence, they will dictate their needs/wants or aspiration and other values. Companies like Google must then incorporate this in their system quickly and ahead of competition to the first-mover advantage. 3. What are the key factors that define success in the industry? What are the key competencies, capabilities, and resources of successful search engine companies? A successful search engine companies must have: Strong and in-depth knowledge about users and advertisers to determine the wave of the future and to assess current practices. Advanced technology that will be set as the new standard Big capital investment to combat any retaliation moves by any competitor 4. Describe Google’s business model. What are the company’s revenue-cost-profit relationships? What strategies has Google relied upon to build competitive advantage in the industry? Company Objectives: to provide the most relevant search results possible to provide the most relevant and useful advertising never to stop working to improve the customer experience Revenue model: Major Sources Advertising fees (95% of total revenues in 2003 and 99% in the 1st nine months 2004) Licensing of supply search capabilities to other internet site and wireless telephone companies. Current Strategies Fortified strong ties with websites, users and advertisers banking on programs like AdSense, AdWords, and CPC (chost-per-click) Developed product differentiation using proprietary know-how and technology like PageRank Minimized bureaucracy and empowered employees to contribute in the product development and other brainstorming processes. Opened Google to the public in 2004 to raise capital investments 5. Have Google’s business model and strategy proven to be successful? Should investors be impressed with the company’s financial performance since 1999 and its market performance since August 2004? Please conduct a financial analysis to support your position. Google’s strategy is very effective and as a result it was the number 1 search engine company to date. In terms of financials, Google in general is a well-managed company. Revenues from the period 2000 to 2003 increased by 325% (compounded growth) to US$ 1.465 B. Furthermore, it registered a positive net income as early as its 3rd year of operation. Contribution of net income is on the average about 11% of net revenues. What is only critical is the escalating cost of revenues increasing from only 16% of revenues in 2001 up to 47% of revenues in 2004. Google must find alternatives or solutions to minimize current cost structure for this will prove detrimental when waging a protracted battle against serious challengers. 6. What are the company’s key resource strengths and competitive capabilities? What competitive liabilities and resource weaknesses does it have? What opportunities exist? What threats to its continued success are present? Strengths Proprietary knowledge in the form of PageRank technology that provides the most relevant search results in the total search engine industry Technology can be integrated into third party hence can provide ease of use and compatibility Strong focus on service to international consumers Strong clout on AOL/Netscape considering that Google is still used as their search engine. Strong net users preference and named as the #1 search company with 34.5% share against total searches Weaknesses Narrow range of product offerings compared to Yahoo, the #1 in terms of total internet site. Highly focused on the search capabilities. Most products are leverage on the PageRank technology. Even new product offering Google Desktop Search is still focus on search based only. Opportunities Low relevance rates of other search engines like MSN and Yahoo. Competitors are still on development stage in improving their search capabilities. Globalization to expand the market size and sales Threats Integration of MSN to Outlook and Internet Explorer that might limit use of Google Yahoo developed its own search capabilities together with Inktomi 7. What recommendations would you make to Google’s triumvirate top-management team to sustain its competitive advantage in the search engine industry? How should it best deal with threats presented by Microsoft, Yahoo!, and others? Build protection on the search capability or PageRank with the objective of preventing competing companies to copy the process. Maximize strong internet user’s preference or loyalty by offering wider range of products and services aside from search capabilities that can compete head on with Yahoo. This will cushion possible migration of current Google users to Yahoo’s new search engine. Develop a technology or a web portal where Google can integrate all their products offering but must still maintain its clean, uncluttered look. Forge tie-ups with other companies not using Microsoft operating system to negate the impact of MSN integration with Internet Explorer and Outlook While the main thrust is convergence, Google must consider also divergence in terms of product or technology development Establish strong customer support to assist and some time delight customers hence encouraging loyalty. Read More