Case Study: Google’s Competitive Advantage

The rise of Google, now a $6.1 billion company, has been fast and fierce. Founders Sergey Brin and Larry Page met in 1995 as Stanford University graduate students. They created a search engine that combined the technologies of Page’s PageRank system, which evaluates a page’s importance based on the external links to it, and Brin’s Web crawler, which visits Web sites and records a summary of their content. Because Google was so effective, it quickly became the search engine of choice for Web users. Today, Google handles nearly 50 percent of Web searches. Google stopped displaying the number of Web pages it indexed after the number surpassed 8 billion in 2005, but some estimates now place the number at 25 billion. Google’s index also includes one billion images and one billion Usenet newsgroup messages.

Google's Competitive Advantage

In addition to searching for Web pages, Google users can search for PDF, PostScript, text, Microsoft Office, Lotus, PowerPoint, and Shockwave files. Google claims to be one of the five most popular sites on the Internet with more than 380 million unique users per month and more than 50 percent of its traffic coming from outside the United States. Google’s IT infrastructure is a closely guarded secret because it is part of its competitive advantage. The best guess is that Google has up to 450,000 servers spread over at least 25 locations around the world. These servers use inexpensive off-the-shelf hardware to run a customized version of the Linux operating system and other critical pieces of custom software. These include MapReduce, a programming model to simplify processing and create large data sets; Google WorkQueue, a system that groups queries and schedules them for distributed processing; and the Google File System, which keeps copies of data in several places so that the data will always be available even if a server fails. According to a widely cited estimate, Google only needs to spend $1 for every $3 its competitors spend to deliver a comparable amount of computing power. This inexpensive, flexible infrastructure explains the speed of Google Web searches and its ability to provide its users with such a vast array of Web-based services and software tools.

Most of Google’s revenue comes from online advertising and online search services. Google Search Services enable organizations to include the Google search engine on their own Web pages. This is a straightforward technology licensing arrangement— not groundbreaking, but profitable. The side of Google that has driven its phenomenal growth and profits is its advertising program. In a fraction of a second, Google’s technology can evaluate millions of variables about its users and advertisers, correlate them with millions of potential ads, and deliver the message to which each user is most likely to respond. Because this technology makes ads more relevant, users click on ads 50 to 100 percent more often on Google than on Yahoo!, creating a better return for advertisers. According to eMarketer, Google grabbed about 70 percent of all

paid search advertising. In 2000, Google launched AdWords, a self-service advertising program in which vendors bid to have their ads placed alongside the search results for specific keyword queries. In 2002, AdWords Select introduced cost-per-click (CPC) pricing so that advertisers only pay for their ads when users actually click on them. Google determines the placement of ads through a combination of the CPC and click-through (total number of clicks) rates so that the most relevant ads for a keyword string appear in the most prominent positions. The keyword-targeted ads appear throughout the Google Network, which includes America Online, Shopping.com, Ask.com, The New York Times on the Web, and many other high-profile Web sites. AdWords has come under some fire for being vulnerable to a practice known as click-fraud. A business whose ad receives thousands of clicks from sources that have no intention of making a purchase may run through its marketing budget quickly and have to drop out of the ad game altogether. Unscrupulous businesses have tried to use click fraud to drive up the cost of competitors ads and put them at a competitive disadvantage. Google and its competitor Yahoo!, have been criticized for their vague response to the problem. Google credits customers for invalid clicks. It also has a system in place to detect click-fraud before customers are charged. Google does not disclose details about its anti-fraud methods to advertisers because of concerns about security. Although advertising customers are worried about fraud attacks, Google must be concerned with legitimate offensives from its rivals. Yahoo! has been sponsoring prominent academic economists and other researchers to find new ways of using its data about online consumer behavior to increase market share for its services and the revenue generated by its searches.

Microsoft has a history of diminishing or destroying its competitors by exploiting the fact that its Microsoft Windows operating system can be found on 95 percent of the world’s personal computers. Netscape Navigator, Lotus 1-2-3, and WordPerfect have all been defeated in this manner. Microsoft launched MSN Search in November 2004, but this search service made only a marginal dent in the market, accounting for 13 percent of worldwide search requests. Still, that 13 percent could double once Microsoft’s Windows Vista operating system enters the marketplace. Microsoft plans to integrate search technology into Windows Vista and into upcoming versions of Office. Two other areas where Microsoft can vault ahead of Google are context-aware searches and “deep Web” searches. By personalizing search technology, a search engine can return results that accurately match the context of the user’s query, producing more relevant search outcomes. Because Microsoft has the capital to purchase the rights to copyrighted material and owns powerful digital rights management software, the company is considered a good candidate to become the gateway to the Deep Web’s massive quantity of documents and data that are not indexed by search engines.

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