some of the things that make Google thrive in such a competitive industry

some of the things that make Google thrive in such a competitive industry

Executive summary

Google is one of the nest ranked companies in the online advertising business. Thus, this report focuses on some of the things that make Google thrive in such a competitive industry. For example, an outline of Google’s business model is given to help understand how Google organizes its products and services. Thus, companies, users, and developers see different things from Google that benefit them as well as earn the company some revenues. Precisely, the company earns money through adverts that are posted on platforms such as YouTube, Gmail, Chrome, and so on. Also, the report highlights how the company faces stiff competition from Facebook, Yahoo, AOL, Microsoft, and Verizon. Some of the challenges that the company faces are also mentioned, such as the issue of market share, bad content, and advertisements. To avoid such problems, the company can improve its relationship with its customers by making the platforms more comfortable to use and access and avoid ad popups. Google also incorporates a platform strategy to allow both content creators and content consumers to enjoy its platforms.  The report also mentions Alphabet, the parent company of Google, which employs diversification to help it improve its services.

Google’s business model is a polyhedral one. In other words, every individual sees a distinct face of the company. For example, some users see free maps, free email, free searches, and free browser, among others. According to Rothaermel (2017), google search answered nearly 2 trillion searches in 2016 as compared to 1.2 trillion in 2012 (pg. 5).  other users prefer to pay for certain premium services such as payment services, cloud services, google earth features, and advanced email.  Also, companies see website space where they can put their advertisements while taking advantage of segmentation and geolocation.

On the other hand, developers and manufacturers see the model as a means to monetize their knowledge via Android apps. To be precise, the cost of software development was quite high for smartphone manufacturers. Thus, by making it an open-source and allowing them to customize it, Google encourages manufacturers to adopt Android (Rothaermel, 2017 pg. 5).  However, despite being open-source, Android is not entirely free for manufacturers. Therefore, google obtains IP settlements with mobile OEMs and is paid to monitor and use their servers as a source for downloading the applications.

Google’s business model makes its revenues mainly through advertisements. The income from the ads keeps increasing each year. For example, google earned $79.38 billion in 2016 as compared to $67.39 billion in 2015 (Appendix A). Thus, it aims at delivering relevant Ads at the right time and give users beneficial commercial information. Online advertising enables Google to make its services free, such as Google searches. The company groups its Ads as either brand or performance advertising. Brand advertising aims at increasing the user’s knowledge of an advertiser’s services or products. Conversely, performance advertising entails relevant collaborative adverts that users can click on, such as text-based Ads placed within search outcomes (Rothaermel, 2017 pg. 7). Most of the Ads are paid on a cost-per-click basis, which implies that Google users must engage with an Ad for the company to earn from it.

Moreover, the company offers its customers other payment alternatives like cost-per-impression, which give brand advertisers a chance to pay depending on the number of time their adverts are exhibited. Google places the Ads on its own site such as, Gmail and YouTube, which have a lot of users. Additionally, the Ads are displayed on Google Network Members, which consist of nearly two million websites and thus reach at least 90% of internet users (Rothaermel, 2017 pg. 7). Some of the products that google advertises are AdSense, AdWords, DoubleClick, Admob.

Google has various competitors when it comes to advertising products. For instance, Facebook is one major competitor which much higher annual revenues than google. The company earned $ 26.89 billion in 2016, which amounted to a 57% increase over the year 2015 (Rothaermel, 2017 pg. 9). Facebook not only exhibits targeted ads on its site but also sells the advertisements on mobile apps and other websites. The company is more advantageous due to its detailed knowledge about its users, which enables it to match ads based on interests, demographics, and behaviors. Also, it allows businesses to interact directly with consumers and the public using Facebook’s pages, messenger services, and Instagram. Thus, when compared to Google, Facebook is way much ahead, which is evidently seen in its revenue. For example, Facebook earned approximately $40 billion in 2017 via online advertising, which is nearly half of what Google earned in the same year. Also, over the last few years, Facebook’s market share has been increasing rapidly, while that of Google has been deteriorating (Exhibit 5).

Also, Google faces fierce competition from Yahoo, AOL, Microsoft, and Verizon. Precisely, the partnerships between these companies make it easier for them to thrive in the online advertisement business. For instance, in June 2015, AOL took over mobile, display and video advertising sales for Microsoft in the United States and other eight foreign markets. Under the new deal, Microsoft’s Bing Network is supposed to power search outcomes and advisements across AOL’s sites. Such an arrangement offers AOL and Verizon communication with higher ad inventory and consumer access. Furthermore, the combination of Yahoo and Verizon attains around a 6% share in the American online advertising market (Rothaermel, 2017 pg. 10). In other words, they have the potential to be a third force to Facebook and Google.

Despite its hype in the online advertising business, Google should worry about a few things. First, it should worry about its market share. Between 2012 and 2016, Google’s global market share in online advertising declined by two percent (Rothaermel, 2017, pg. 10). As a result, the company is struggling to retain its grip on advertising as most individuals are now turning to voice-enabled search and mobile devices for information. Secondly, Google sometimes has bad content and bad adverts. For example, in 2016, the company took down around 1.7 billion ads that violated its policies.

Additionally, it promotes illicit products and has unrealistic offers.  Thirdly, Google has issues with regulation, which has invited a lot of scrutiny and criticism.  The company has found itself in several European courts over issues like unpaid taxes and privacy violations. For instance, in 2016, Google was accused by the European courts of forcing telephone companies and phone manufacturers into favoring Google’s search browser and engine on devices with Google’s operating system (Rothaermel, 2017 pg. 10). Generally, the aforementioned challenges are dragging the company down and thus need to be addressed. For example, to increase its market share, Google requires to strengthen its relationship with its consumers. It can attain this by ensuring their apps and platforms are not hard to use. Also, they should engage in legit ads and avoid forcing the users to view the ads via popups.

A platform strategy entails an approach to enter a market that mainly revolves around the task of enabling platform users to benefit from the presence of others. The company has platforms for both content creators and contents consumers. For instance, there are several platforms where content creators can create their content, such as YouTube, google analytics, and Google Docs. On the other hand, various programs are used as a platform for content consumption such as Google Chrome, Android Google Tv, and Google Reader (Church, 2017). Google incorporates a platform strategy by allowing its new users to sign up while current users log in on their sites such as Gmail, Chrome, YouTube, and so on. Also, its google play platform allows users to access movies, music books, apps stores, television programs, and books.  They enable their users to set up google analytics where they can acquire their analytics form the platform.

A platform strategy has both strengths and weaknesses. Concerning strengths, the strategy allows Google to benefit from network effects. According to Saulles (2019), it will enable the company to exploit the phenomena commonly referred to as network effects. The network effects elaborate on how the value of a service or network becomes excessively more valued by its customers, the more the customers they are. For example, a social network like YouTube offers higher value to both current and new users as new users increase the potential number of connections available. Also, it helps Google keep its competitor out of its market. Thus, the strategy makes it difficult for new entrants to overtake it in the online platforms like YouTube and Google search where it’s well established. Conversely, the approach requires a minimal level of “openness.” Since Google relies on the value created by users, it exercises too much “openness,” which can fail. It also requires the company to engage its developers (Reeves, 2017). In other words, Google should provide software developers with resources to feedback on performance and design, innovate, and rewards for participation.

Alphabet, the parent company of Google, is pursuing the concentric diversification strategy. The strategy involves the introduction of new but related products in the markets. Thus, Alphabet wishes to combine the existing collections like wiki data, maps, and freebase, and various partnerships, loads of manual work, and crowdsourcing to generate its semantic knowledge bases (Bicheno, 2015). In the end, the knowledge bases will be for interconnection and in various products. Also, the Alphabet’s organizational structure is a divisional one. In other words, each of the Alphabet’s company has its CEO (Dudovskiy, 2017). For instance, Google being one of the divisions in the company is the CEO. However, the company still has the overall CEO, Larry Page. The idea is to increase the transparency of the organization’s finances. Thus, both the strategy and organizational structure are needed to allow the subsidiary companies to have independence and establish their brands. Moreover, the company will retain its ability to attract top talents who are being poached by pre-IPO ventures. Additionally, the diversification and structure allows the company to build and run its operations with the speed and autonomy it needs. As a result, the company moves beyond the search engine and focus to diversifying to a greater extent. For example, it led to the introduction of other businesses like Waymo which is designed to stop mosquitoes in their tracks.

References

Bicheno, S. (2015). Google creates Alphabet holding company to aid diversification. Retrieved 20 February 2020, from https://telecoms.com/435881/google-creates-alphabet-holding-company-to-aid-diversification/

Dudovskiy, J. (2017). Alphabet Inc. Organizational Structure: divisional and flat – Research-Methodology. Retrieved 20 February 2020, from https://research-methodology.net/alphabet-inc-organizational-structure-divisional-and-flat/

Nawal, A. (2020). How Does Google Make Money? | Google Business Model | Feedough. Retrieved 20 February 2020, from https://www.feedough.com/how-does-google-make-money-google-business-model/

Church, Z. (2017). Platform strategy, explained | MIT Sloan. Retrieved 20 February 2020, from https://mitsloan.mit.edu/ideas-made-to-matter/platform-strategy-explained

Saulles, M. (2019). 4 reasons why you should consider a platform strategy. Retrieved 20 February 2020, from https://www.idginsiderpro.com/article/3359183/4-reasons-why-you-should-consider-a-platform-strategy.html

Reeves, M. (2015). Google Couldn’t Survive with One Strategy. Retrieved 20 February 2020, from https://hbr.org/2015/08/google-couldnt-survive-with-one-strategy

Rothaermel, F. (2017). Alphabet’s Google [Ebook] (pp. 5-12). McGraw Hill Education.