Google Case Report
Case Report
Tyler Echevarria
Amanda Osburne
Samantha Smith
GBA 490
4/7/2010
Table of Contents
Situation Analysis ................................................................................ Ошибка! Закладка не определена.
G o o g l e I n c . Page 2
Executive Summary
To: Eric Schmidt, CEO
From: Tyler Echevarria, Amanda Osburne, & Samantha Smith
Re: Strategic Analysis of Google Inc.
Date: April 7, 2010
This report will make recommendations for improvement of Google Inc. based on the analysis of the company’s financial resources and industry evaluations. Several analytical tools will be used in determining the direction the company should pursue. These analytical tools and techniques include the following:
Evaluation based on SWOT analysis
Evaluation based on Key Success Factors
Evaluation of Google’s business model and strategy
Analysis of financial data
Evaluation of current industry conditions
These tools will be used to recommend new opportunities for Google to pursue as they continue to seek growth. Google has performed quite well recently, but must continue to push the technology frontier in order to continue this growth.
Using the analysis of Google’s current situation, three recommendations have been devised. These include a push for cloud computing, ways to improve YouTube’s revenue, and how to better handle international relations.
G o o g l e I n c . Page 3
Strategic Issues
Google Inc. is the world’s leading web search engine, delivering fast and accurate search results.
As the financial analysis shows, the company’s revenues reached $23,650 in 2009, coming mostly from its advertising. Google’s advertising system uses both AdWords and AdSense so that advertisers can target customers based on their specific search requests. Since 1996, the company has been extremely successful through their progressive search technology capabilities and use of advanced advertising techniques to increase their profits. As the SWOT analysis shows, these factors have allowed Google to remain top in the industry, develop a strong brand value, and keep a large customer base.
Although Google has flourished through the years they must still focus on sustaining a competitive advantage over their rivals and resolving current problems. One main issue that
Google is still in the process of solving is their relations with China regarding censorship of their search engine website. The company has made enemies with many of China’s significant government officials. Additionally, Google has not followed their philosophy, which states “it’s best to do one thing, and one thing only”. Instead, the company has invested in so many companies that not all of them have proved profitable. In order to stay an industry leader, Google must find a way to benefit from unsuccessful acquisitions and partnerships, or else limit further takeovers. Furthermore, Google must strive to remain competitive with their top rivals Microsoft and Yahoo. Focusing on developing progressive technologies and meeting customer needs should be Google’s top priority. Even though Google Incorporated ranks high in their industry, there are always improvements and changes that can be made to enhance the company.
G o o g l e I n c . Page 4
Recommendations
Focus on improving YouTube’s revenues
Google’s strategy (as seen in the Analysis of Company Strategy) consists of acquiring or partnering with companies to either enter new markets or help stay competitive in their current ones. Most of Google’s acquisitions, such as Double Click, Tatter and Company,
On2Technologies, and Aardvark, have been beneficial and therefore seen a return on investment.
However, as seen in the SWOT analysis, Google’s main weakness was acquiring YouTube in
2006. Originally, the company’s leadership predicted that this investment would allow them to enter the market for online video sharing and social networking, thus increasing their revenues.
Controversially, YouTube has only hurt Google profits, with loses recorded of about $470 million at the end of 2009. YouTube allows users to upload videos or advertisements for free; consequently Google is receiving no profits like they do with advertisers on their search engine’s website. Google’s “stock is primarily driven by the company’s search advertising business,” so it is imperative for Google to find a way to profit off of advertisers using YouTube (Forbes). The company could gain tremendously from YouTube’s service if they structure the video sharing to include paid advertisements.
Specific recommendations for focusing on improving YouTube’s revenues include:
Learn how, recently acquired Episodic Inc. earns profits, and use their beneficial practices for YouTube
Make advertisers bid to purchase open ad inventory on YouTube
Incorporate the AdWords system into YouTube to increase Google advertising revenue
G o o g l e I n c . Page 5
Possible Implementation Issues: lengthy/expensive process to restructure the way YouTube works; might lose customers or advertisers due to new charges for uploading; Episodic way of advertising could not work the same for YouTube.
Improve International Relations
Google needs to continually improve their international relations. Google needs to focus in
Brazil and India.
Currently Google has: www.google.de (Germany) www.google.fr (France) www.google.ca (Canada) www.google.co.uk (United Kingdom) www.google.it (Italy)
Google Sites ranked as the most visited Internet property worldwide with 854 million unique visitors age 15 and older in July, an increase of 18-percent during the past year. Nearly 75 percent of all Internet users worldwide visited the Google Sites property, which accounted for
9.4 percent of all time spent online. Nearly one out of every ten minutes a person spends online around the world is spent on a Google site.
In 2006 Google reached an agreement with the Chinese government that gave it access to the enormous Chinese market if the company purged its Chinese search results of banned topics. But in January 2010, Google announced that it would stop cooperating with China's Internet censorship and consider shutting down its operations in the country altogether. It cited assaults from hackers on its computer systems and China's attempts to "limit free speech on the Web," as the reasons for its decision.
G o o g l e I n c . Page 6
On March 22, 2010, Google said that it would close its China-based Web site and instead direct
Chinese users to a Hong Kong-based uncensored version of its service, which may get blocked in mainland China.
The stunning move represented a powerful slap at Beijing regulators but also a risky ploy in which Google will essentially turn its back on the world’s largest Internet market, with nearly
400 million Web users and growing quickly.
Italy has been a difficult market for Google. A law being debated in the Italian Parliament in
2010 would increase internet companies’ liability for copyright violations and other potential infractions, and Google also faces an antitrust investigation stemming from complaints brought by Italian newspaper publishers claiming the company exercises unfair control over the online advertising business.
Right now, Google needs to focus its attention on the two emerging Internet markets of Brazil and India. These two markets depend on Google. In July, 29.8 percent of total time spent online in Brazil was spent on Google Sites, with India only slightly lower at 28.9 percent. The next highest global market was Ireland at 15.9 percent. Notably, despite Google’s high relative share of time spent in Brazil, it slightly trailed Microsoft Sites’ 30.1 percent share of time spent in the market.
In Brazil, Google Sites accounts for 89.5 percent of all searches conducted, while Google Orkut has a dominant position in social networking (96.0 percent of time spent), as does Google Maps in the maps category (70.9 percent of time spent) and Google-owned YouTube in the multimedia category (91.6 percent).
In India, Google Sites accounted for 88.4 percent of all searches conducted, and had commanding share of time spent in social networking with Orkut (68.2 percent), maps with
G o o g l e I n c . Page 7
Google Maps (63.9 percent), multimedia with YouTube (82.8 percent). It also commanded slightly less than half of all time spent in the blogs category with Blogger (47.6 percent) and email with Gmail (46.8 percent).
Because of these strong numbers, in the market share and growth rate, Google has an opportunity to capsize this Internet market. Even though China was initially the focus due to its numbers,
Google needs to realize the likeliness of ever reaching an agreement with the Chinese government is slim to none. It would be better for Google to be strong in India and Brazil and look for growing markets.
Push cloud computing
Cloud computing is the next wave in technology. It will truly change the landscape of how companies and people handle documents and programs. Google can gain a large competitive advantage if they are able to beat Microsoft to the market with cloud computing software that is truly dominant. Current Google applications such as Google docs are excellent but not as finely polished as Microsoft Word and Excel. If Google can beef these applications up, and become a one stop service provider, it would boost their overall revenues.
Companies want more efficient and cheaper ways to gain productivity from their workers. Providing them with a one stop place to access all of their documents is a great way to achieve this. They spend less time searching for the programs they are after, because they are all listed right there. This coupled with the ability to access this data from any internet source, could dramatically increase efficiency.
With applications that are stronger and able to do the job better, Google would be able to increase the price they charge per license, thus increasing revenues.
G o o g l e I n c . Page 8
Possible Implementation Issues : The main problem with this recommendation is that it pushed Google away from their core competency as a search engine. If they spend the amount of man hours and resources needed to make their cloud computing software really good and do not come out on top of Microsoft then it was all wasted. Meanwhile they have diverted valuable resources away from improving their search engine thus potentially losing market share their as well.
G o o g l e I n c . Page 9
Appendix
G o o g l e I n c . Page 10
SWOT Analysis
Strengths
•
Strong brand value
• Robust market position
•
Significant infrastructure base
• Efficient use of resources
Weaknesses
• Losses at YouTube
Opportunities
• Steady growth of internet domain names
• Growing demand for online video
• Growth in internet advertising market
Threats
• Intense competition
• Economic uncertainties effecting advertising spending
• Invalid Clicks
G o o g l e I n c . Page 11
Summary and Implications : From this SWOT analysis you can clearly see that Google is doing very well. They are seen as a strong leader in their market and do not have much to fear other than themselves. They do have plenty of reasons to be optimistic about potential growth in revenues and services. The recommendations made in the report are based on building off of the opportunities presented here.
Key Success Factors
Development of New Products: New products and services increase internet traffic to affiliated sites, which will increase revenues. Google has done a great job of diversifying their products.
There are so many different products that it is hard not to find a solution to users problems somewhere on their website.
Ability to Innovate: Google must continue to invest in products that can revolutionize the industry. A great example of this would be a push in cloud computing software. If Google can be the industry leader in cloud computing, then they will have changed the industry and created a new distinct competitive advantage.
Establish a Brand Name: Google has become so synonymous with search engines it has been added to the Oxford dictionary as a verb. This kind of brand name ensures that customers will repeatedly use a service. It also will help in creating a loyal customer base. A loyal customer base will aid in attracting advertises.
Consumer Friendly Products: All services provided must be easy to use and effective at the same time in order to build customer use. It also must provide enough depth that experienced users can do all of the tasks they need. It is a fine line to establish and Google has done well in
G o o g l e I n c . Page 12
ensuring new users know how products work. They have posted videos about each service that demonstrate the ins and outs of the product or service.
Driving Forces
Increasing Globalization :
Because the internet is an international service, it is vital for search engines to be global. Industry members are seeking out customers in foreign markets. Companies are becoming more ambitious about becoming the worldwide leader. A determining factor is the search engine’s ability to comply with each country’s rules and regulations. Like all international launches the company needs to work with the culture in order to be accepted and successful.
Marketing Innovation :
In the search engine industry, the main profit comes from the advertising. It is important for these engines to market themselves as the host for advertisement. It can spark buyer interest of companies that might have not considered this type of advertising before. It can widen industry demand and increase differentiation.
Diffusion of technical know-how across more companies and more countries :
Competitive advantage is held by a search engine by having the most advance technology knowhow. The important part is providing vital content to users while still making the website easy to use. As knowledge about how to perform these activities spread, Google will lose competitive advantage. The only way to remain on top is to continually improve the system.
G o o g l e I n c . Page 13
Dominant Economic Features
Market size and growth:
Search engines are a multi-billion dollar company. Even with the economic downturn, they continue to make profit. In 2008, Google had 61.6% of the market share with the next closest being Yahoo with 20.4%. In recent years, Microsoft introduced Bing but as of December 2009 it had less than 10% of the market share.
Number of rivals:
The search engine industry is concentrated. With such a large industry it is odd that there only about six major rivals. When comparing search engines Google, MSN, AOL, Yahoo, and
Microsoft services are the only ones with significant market share. Because of this, it is harder for smaller search engines to enter the market. The strength and concentration of the current ones makes its nearly impossible.
Number of buyers:
The buyers in this industry are the advertisers. The market demand is fragmented among many buyers. Over 100,000 companies advertise on Google. It is Google’s number one source for profit. Competitors would be wise to allow pay-per-click advertisements on their search engines.
However, because there are so many advertisers, they have no bargaining power. Even though it seems these companies would because they provide the profit, Google is so powerful it has plenty of companies to choose from. Google is able to boot any company that does not follow its rules. It is the equivalent to Wal-Mart’s power over its suppliers.
G o o g l e I n c . Page 14
5 Competitive Forces
Barriers to Entry- MODERATE
Large capital requirements
Must find the best and smartest employees
Must have new, creative ideas for the future
Must have modern technology to be competitive
Supplier Bargaining Power- LOW
Modern technology is the most important factor
Buyer Bargaining Power- LOW
Advertisements are bid on and the system is comprised of a cost per click system
Threat of Substitutes- LOW
Library
Phone book
Encyclopedias
Other internet research besides a search engine
Academic Journals
Map
Threat of Rivalry- HIGH
Intense competition (especially with Yahoo and Microsoft)
Each company in the industry seeks new competitive advantages to stay on top
Companies in the industry must differentiate themselves because they offer a free service that can be found elsewhere
G o o g l e I n c . Page 15
Competitive Landscape
Key Numbers
Annual Sales ($ mil.)
Employees
Market Cap ($ mil.)
Profitability
Gross Profit Margin
Pre-Tax Profit Margin
Net Profit Margin
Return on Equity
Return on Assets
Return on Invested Capital
Valuation
Price/Sales Ratio
Price/Earnings Ratio
Price/Book Ratio
Price/Cash Flow Ratio
Operations
Days of Sales Outstanding
Inventory Turnover
Google AOL MSN 1 Yahoo!
23,650.6 3,257.4
19,835 6,700
181,569.2 2,701.7
Google AOL
62.61%
35.44%
27.57%
20.3%
18.0%
19.5%
41.72%
13.97%
7.64%
7.3%
5.6%
6.8%
Google AOL
7.71
28.01
5.04
19.57
Google AOL
Days Cost of Goods Sold in Inventory --
Asset Turnover
Net Receivables Turnover Flow
Effective Tax Rate
Financial
Current Ratio
Quick Ratio
Leverage Ratio
Total Debt/Equity
Interest Coverage
Per Share Data ($)
Revenue Per Share
Dividends Per Share
Cash Flow Per Share
Working Capital Per Share
Long-Term Debt Per Share
Book Value Per Share
Total Assets Per Share
Growth
44.92
--
0.7
8.1
22.2%
10.62
10.1
1.12
0.04
--
Google AOL
74.04
--
29.17
83.09
4.38
0.82
10.79
0.88
2.95
53.93
--
--
0.7
6.8
45.4%
AOL
0.91
0.8
1.29
--
--
30.79
--
8.58
(0.60)
0.39
113.23
127.36
28.73
37.20
Google AOL
--
--
--
MSN
--
--
--
1
6,460.3
13,900
23,117.3
Yahoo! Industry
Median
Market
Median
55.55% 59.10% 28.77%
8.89% 13.65% 8.48%
9.26% 13.70% 5.53%
2
--
--
--
--
5.0%
4.2%
10.0%
8.4%
-- 5.0% 9.6%
MSN 1 Yahoo! Industry
3.62
39.37
Median
6.43
48.08
10.1%
1.5%
4.4%
Market
Median 2
3.72
27.32
--
--
MSN 1
--
--
1.85
17.83
Yahoo!
58.30
--
4.53
20.28
Industry
Median
44.97
7.23
23.09
Market
Median
34.66
1,277.0 8.1
2
--
--
--
0.5
0
0.6
45
0.3
-- 6.3 8.1 10.5
-- 38.2% 46.8% 37.9%
MSN 1 Yahoo! Industry
Median
Market
Median 2
-- 2.67 6.12 1.33
--
--
2.5
1.20
5.8
1.18
1.2
7.13
-- -- 0.04 1.37
-- -- 167.35 17.33
MSN 1 Yahoo! Industry
Median
Market
Median 2
-- 4.56 12.10 7.60
--
--
--
--
--
0.93
2.05
0.06
0.01
3.83
9.55
0.77
-- 8.92 17.19
-- 10.67 20.24
MSN 1 Yahoo! Industry
Median
0.25
1.22
0.64
4.06
3.91
27.90
Market
Median 2
G o o g l e I n c . Page 16
12-Month Revenue Growth
12-Month Net Income Growth
12-Month EPS Growth
12-Month Dividend Growth
36-Month Revenue Growth
36-Month Net Income Growth
36-Month EPS Growth
36-Month Dividend Growth
8.5%
54.3%
53.3%
--
30.7%
28.4%
27.1%
--
--
--
--
--
(21.8%)
--
--
--
--
--
--
--
--
--
--
--
(10.4%) (0.0%) 31.9%
40.9% (0.2%) (27.7%)
44.8% (0.2%) (50.0%)
-- (92.8%) --
0.2% 23.4% 14.3%
(7.3%) (6.3%) (5.6%)
(6.9%) 4.9%
-- (37.3%)
(14.7%)
--
HooversOnline Database
Financial Analysis
Dec 09 Dec 08 Dec 07
Revenue 23,650.6 21,795.6 16,594.0
Cost of Goods Sold
Gross Profit
Gross Profit Margin
SG&A Expense
Depreciation & Amortization
Operating Income
Operating Margin
Nonoperating Income
Nonoperating Expenses
Income Before Taxes
Income Taxes
Net Income After Taxes
Continuing Operations
Discontinued Operations
Total Operations
Total Net Income
Net Profit Margin
Diluted EPS from Total Net Income ($)
Dividends per Share
8,844.1 8,621.5
14,806.4 13,174.0
62.6%
3,651.2
1,524.3
60.4%
3,748.9
1,499.9
8,312.2
35.1%
(160.7)
229.7
8,381.2
1,860.7
6,632.0
30.4%
(1,167.9)
--
5,853.6
1,626.7
6,649.1
9,944.9
59.9%
2,740.5
967.7
5,084.4
30.6%
31.6
--
5,674.0
1,470.3
6,520.4
6,520.4
--
6,520.4
6,520.4
27.6%
20.41
--
4,226.9
4,226.9
--
4,226.9
4,226.9
19.4%
13.31
--
4,203.7
4,203.7
--
4,203.7
4,203.7
25.3%
13.29
--
HooversOnline Database
CAGR from 2007-2009: 19.4%
G o o g l e I n c . Page 17
Identification of Rivals
Percent of Searches
Search Entity July 2006
Google sites
Yahoo sites
Microsoft sites
AOL
Ask
Others
Total
43.7%
28.8
12.8
5.9
5.4
3.4
100%
Financial Summary from 2007
Yahoo
Revenues
Operating Income
Net Income
Long-term liabilities
Stockholders’ equity
6,969,274
695,413
660,000
384,208
9,532,831
Financial Summary from 2009
Yahoo
Revenues
Operating Income
Net Income
Long-term liabilities
Stockholders’ equity
6,460,300
386,700
598,000
83,000
1,400,201
Microsoft
51,122
18,524
14,065
8,320
31,097
Microsoft n/a n/a n/a n/a n/a
April 2008
61.6%
20.4
9.1
4.6
4.3 n.m.
100%
16,593,986
5,084,400
4,203,720
610,525
22,689,679
23,650,600
8,312,200
6,520,400
1,392,500
36,004,200
G o o g l e I n c . Page 18
Yahoo
Yahoo was the second leading Internet destination worldwide in 2008, with 142 million unique visitors each month. Visitors could access content categorized by Yahoo or set up an account with Yahoo to maintain a personal calendar and e-mail account, check the latest news, check local weather, obtain maps, check TV listings, watch a movie trailer, track a stock portfolio, keep an online photo album, or search personal ads or job listings.
Yahoo hosted Websites for small businesses and Internet retailers and had entered into strategic partnerships with twenty mobile phone operators in the United States and Europe to provide mobile search and display ads to their customers. By 2008, Yahoo accounted for 35% of searches performed on mobile phones.
Yahoo Services:
Banner ads displayed at Yahoo.com
Yahoo! Messenger
Yahoo! Mail
Flickr
Yahoo! Autos
Yahoo! Real Estate
Yahoo! Travel
Yahoo! Games
Yahoo! Music
Yahoo! Personals
G o o g l e I n c . Page 19
Microsoft Online Services
In 2008, Microsoft owned Windows Vista and Microsoft Office along with other computer software, consulting services, video game hardware, and online services. The company’s online services business recorded sales of $3.2 billion and an operating loss of $1.2 billion during fiscal
2008.
However, Microsoft and Google now compete in different ways. A few years ago Google began posting jobs that align with Microsoft’s requirements. Bill Gates realized Google was attempting to create an operating system similar to that of Microsoft.
This past year Microsoft launched a new search engine Bing. According to Bing’s website:
“set out to create a new type of search experience with improvements in three key areas:
Delivering great search results and one-click access to relevant information
Creating a more organized search experience
Simplifying tasks and providing tools that enable insight about key decisions
Microsoft also found that 66 percent of consumers are more focused on using the Internet to get things done, rather than to simply find information. Therefore, with Bing we created much more than an Internet search engine. Instead, we created what is essentially an Internet decision engine that will help you navigate through the rampant excess of information and find the shortest distance to an informed decision.”
Other competitors:
AOL
Ask
MSN
G o o g l e I n c . Page 20
Analysis of Company Strategy
Google’s strategy consists of three main initiatives, the first of which is to dominate internet advertising. The company planned to do this through acquisitions and partnerships. With many acquisitions and research and development the company totaled around $16 million in advertising revenues during 2007. After adding features such as Gmail and Google Maps, the company has steadily opened up more advertising space for companies. In addition, the Double
Click has allowed Google to not only advertise using search ads, but also banner ads.
Furthermore, the Android operating system for cell phones expands internet advertising; with
Google recording that 63% of their searches were completed using a cell phone.
The second part of Google’s strategy includes controlling the desktop especially in regards to “cloud computing”. Analysts predict that cloud computing will be used in the future for businesses and suggested that Google be a first to enter that market. In 2008, the Chrome
Browser was launched allowing users to operate business applications via the internet. Although
Microsoft has a large market share in software, Google can gain a competitive advantage in cloud computing through continued research and development.
Lastly, Google planned to enter into regions where internet access was increasing, with low competitive in their specific industry. This would allow the company to increase their market share, making it harder for rivals to compete. In addition, gaining a larger customer base would bring higher profits to the organization. By continually pursing these strategic plans,
Google should maintain a large market share and increasing revenues.
G o o g l e I n c . Page 21
