1. Discuss competition in the search industry. Which of the five competitive forces seem strongest? Weakest? What is your assessment of overall industry attractiveness? Search engine industry is built on search and also advertising. It seems like there are only five major competitors in this industry competing with Google. I think the competition is tight because most of them are target the same market and conducting the similar business and technologies. The five major companies are Yahoo! , MSN, Baidu, Ask, and AOL. * Bargaining power of buyers- in both 2007 and 2008, 97% of Google’s revenues came from advertising business.
The rest 3% of its revenues were made by other businesses. The advertisement customers have power to bargain because Google relies on its advertisement sales too much. In addition, since this industry is relatively new, there are still growth opportunities for Google’s current or potential competitors which result in high bargaining power of buyers. * Bargaining power of suppliers- talent people are Google’s suppliers. It’s too hard to get a person with the knowledge and skill that it wants, and therefore, Google provides lots of benefits and flexible working schedule to attract and keep them in company.
Therefore, suppliers also have a high bargaining power. * Substitute- as a search engine or as a advertisers, there’s few powerful or suitable substitutes can replace Google. * Potential entries- Internet search engine industry has a low barrier to prohibit new potential entries to enter. Current big players exhibit a high technology and a lot of know-how. Although the barrier is low, new entries must provide better and quicker search results then other competitors. They have to win others with better and quicker service, which are hard. Rivalry- the major rivalries are Yahoo! And Microsoft. However, the truth is that all competitors have a similar services and products. Competition is based on non-price dimensions, such as marketing, brand name, knowledge of employees. * I think the suppliers have the strongest competitive power and the substitutes have the lowest competitive power. * The overall industry is still very attractive even though there’s an ongoing recession in the US. The users of Internet increase almost 55% in the US and Asia has a faster and larger growth.
Internet advertising becomes the second most common form of advertising used in the US in 2007 and search-based ads accounted for the largest portion of Internet advertisements in the US in 2007. All these evidences show this is a growing market with lots of opportunities. Besides, with a low barrier of entry, many new investors would want to join the business. 2. How is the search industry changing? What forces seem most likely to bring about major change to the industry within the next three to five years? * Google believe that most computer software programs used by businesses would move from local hard drives or intranets to the Internet.
And the Cloud Computing would become ta common software platform. So the first trend is the cloud computing. This would possible benefit corporate users lower software acquisition costs, lower computing support costs, and easier collaboration among employees in different locations. * The second trend can be mobile search or advertising. Google launched the Andriod operating system for mobile phones in 2008, allowing wireless phone manufacturing to produce Internet-enabled phones boasting feature similar to iPhone. The other trends might include; internationalization of the search market, competition between Baidu and Google in China, merger with other search companies, or specialized engines for customer needs. 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? Factors define success * Consumer demand for innovative and interoperable products or services * Improved search program (easier to use, fast, accurate) * Awareness of convergence in media, internet, broadcast and entertainment * Security Awareness of user habits and needs (supply solutions to anticipate and meet needs) Key competencies * Constant Innovation of search algorithms * Open transparent organizational culture * People profit, people first * Corporate Reputation: brand name * Back net-neutrality interoperability and open source Capabilities * Financially sound (Ex: Google and Yahoo! have the financial clout to afford large acquisitions, or to invest significant financial resources in a R&D. ) * Globalization with good reputations 4.
Describe Google’s customer value proposition, profit formula, and key resources linked to its business model. What strategies has Google relied upon to build competitive advantage in the industry? Google business model generates revenues by providing advertisers with an opportunity to deliver online advertising. Google business model is based on three elements, AdWords, search appliance, and AdSense. The strengths of Google business model are reliable pricing system, scalable architecture, disruptive business model, and efficient ad system and relevant ads.
In order to support further growth of Google, their strategies include * Differentiate its quality of service with others (relevant results, innovative services) * Focus on user experience and anticipate user needs * Develop personalized user products and services * Protect talent employees Therefore, Google needs to * Invest more in its R&D * Pursue strategic alliance * Manage Google brand 5. Have Google’s business model and strategy proven to be successful? Should investors be impressed with the company’s financial performance? How does the company’s financial performance compare to that of Microsoft and Yahoo?
Please conduct a financial analysis to support your position—you may wish to use the financial ratios presented in the Appendix of the text as a guide in doing your financial analysis of the company. Figure 1: Total Revenue Structure It’s easy to see the growth of the Google’s total revenue is constant from the above chart. It doesn’t have negative revenues even in the recession which started in 2007. Figure 2: Cost Structure From the cost percentage of revenues, we can see that largest costs were at general and administration expense and then R&D. Cost of sales and marketing was the last except for the year 2001.
It fits its principle that focus on the users and all else will follow. It believes if it can do its job well, and customers will come to purchase its products naturally. In 2007 when the recession began, Google still invest lots of money in its R&D and the cost of it even higher than the general in the year. Figure 3: Cash Ratio Google has better liquidity than Yahoo! since 2004. They both were impacted by the recession starting in 2007 but they both recovered. Figure 4: Operating Profit Ratio Figure 5: ROE Figure 6: Debt Ratio Overall we can see that Google’s Finance and operating profits were all better than Yahoo!.
At the Operating chart, although Microsoft’s profits were the highest, it was the profits for whole corporation. If we only calculate Microsoft’s online business, it had negative operating income for both 2007 and 2008. Although Google has higher debt ratio, it’s a growing new company. For a growing company, it’s acceptable. 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? Strength: Large leader in the global search market with more than 85% of the searches conducted * Leader in the global search advertising market * Superior search (good relevant results) * Superior advertising algorithms * High brand awareness: users’ trust * Significant infrastructure base * Financial stability Weakness * Interruption of failure of Google services * Competitor strategic action (social network) * Inability to hire or retain key people * Inability to scale operational processes * Top management issue * Lack of product integration * Possible slowing of high revenue growth Opportunity Increase in Internet users * Increase in search advertising * New market growth (oversea markets) * Large definition of search market (Social video, YouTube) * Increase in wireless subscribers worldwide * Strategic alliance with other competitors * Investment in R&D innovation (for future trend, such as cloud computing) Threat * Privacy concerns (security) * Regulations (antitrust, copyright) * Global competition * Economy (recession) * Open source systems 7. What recommendations would you make to Google’s top-management team to sustain its competitive advantage in the search industry?
How should it best capitalize on its strategic initiatives in mobile search, cloud computing, emerging markets, and other ventures? I think the first recommendation would be keep investing in its R&D. I think to maintain its competition, innovation and hiring talent people are the two things Google has to keep doing. Constant research for improved programming and communications can help it attract new users and consumers to increase its market shares under this search industry, which new entries can come in relatively easy.
Also, it perhaps can try to merge or find alliance to integrate its business. So far, Yahoo! has a integration Web site. Users can check almost everything they want easily, such as auction, weather, dictionary, news, and so on. Although it’s easy to use Google’s search engine, it doesn’t have a integrative page to make users’ life easier. Mobile operating system is another area should be focusing on. Mobile phone (smart phone) is the trend of daily life, and we can see how successful Apple is right now because its iPhone, iPad, iPodTouch products.
The mobile market is not only growing in the US but also in China. In China, new generation (generation Y or so) use their mobile phone much often than using laptops, They check news and surf websites by phones. Manage Google brand as well. Keep on avoiding marketing. Anticipate, support, expand user’s bond with the Google brand by anticipating their needs, and developing tools that meet them. Allow users to have interactive access and control over their own personal information, increasing its usefulness and building trust in Google’s brand.