Case Study: Google’s Competitive Advantage

Microsoft’s battle for Google’s market share goes beyond search engines. To Microsoft, Google has ceased being a search technology company and is now a software company, capable of infringing on the markets that Microsoft dominates. In the past, Microsoft has thwarted competition through strategic pricing and feature enhancements, as well as by tying its products together so that they are the most convenient to use. Microsoft may not find it so easy to thwart Google. Other software manufacturers had to rely on Windows as a platform on which to run their products. Since Google’s applications are Web-based and not tied to the Windows operating system, Microsoft can’t use its operating system monopoly to limit access to Google. Google is giving away its Linux-based programs over the Internet for free.

Google is constantly looking for new ways to grow. Its AdSense program scans Web pages for target words and displays appropriate advertisements, enabling Web site operators to generate revenue from their sites. Google introduced the Google Toolbar, which enables Web surfers to search the Google index without visiting the Google home page. The toolbar also provided one of the Web’s earliest defenses against pop-up ads. Google’s image search index launched in 2001 and now archives more than one billion images. In 2002, Google News appeared, becoming the first Internet news service compiled completely by computer algorithms, and offering customized news alerts by e-mail.

In April 2004, Google announced its Gmail, Web-based e-mail service, offering free online storage to users. Google made headlines later that year when it released Google Desktop Search, a downloadable program for searching personal files on a computer, including e-mail, productivity files, browsing history, and instant message conversations. The latest version of Google Desktop introduced Gadgets, small applications that bring specific content such as news, weather, or cartoons, along with highly targeted ads, directly to the user’s desktop.

In the spring of 2006, Google introduced Google Spreadsheets, a Web-based spreadsheet application, and also acquired the company Writely, which offers a Web-based word processor. In late August of that year, Google offered a package targeting businesses called Google Apps for Your Domain that bundles e-mail, calendar, instant messaging, and Web page creation services that run on Google’s computers. Competition with Microsoft will intensify when Google adds its online spreadsheet, word-processing, and collaboration applications to the Apps suite and markets the whole package to large companies. How far Google can eat into Microsoft’s software franchise is uncertain. But Microsoft fears Google’s Web-based computing model could make it possible for computer users to bypass its products entirely.

Other popular services that Google has introduced include Froogle, a consumer product locator, and Google Maps, which includes dynamic online mapping and satellite pictures of searchable addresses. Google also acquired and improved Picasa digital photo management software, which is downloadable free of charge and introduced a free instant messaging and voice communication service for personal computers called Google Talk. Instant messaging is now fully integrated with Gmail so users can chat in the same window in which they compose and read email. Taking advantage of the social networking   craze started by Web sites such as Friendster and MySpace, Google partnered with Nike to create an online, invitation-only community for soccer fans worldwide called Joga.com.

Not all of Google’s products have been met with unanimous enthusiasm. Gmail, for instance, raised the ire of privacy advocates because it uses the same technology as AdSense to place advertisements alongside messages. The selection of ads is based on the actual text of the messages, meaning that every Gmail message is read by an automated scanner. Google Checkout, which stores users’ credit card numbers and shipping information to facilitate online purchases, is forging new relationships with online merchants, who receive a more favorable transaction charge from Google than they would get from credit card companies. Google’s roster of paying advertisers continues to grow. Google Video allows users to search for and then purchase TV shows, sports broadcasts, film clips, and music videos. In this area, Google has less experience than Yahoo! in negotiating with content providers, who are particularly concerned with piracy in the digital age. Eric Schmidt, Google’s CEO, says that video search and its corresponding rights issues “will be a major story for Google for years.” In the meantime, profits continue to soar, and Google will continue to innovate. Schmidt estimates that Google will need 300 years to organize all of the information in the world.

Questions to Discuss:

  1. Evaluate Google using the competitive forces and value chain models.
  2. What are Google’s sources of competitive advantage? How does it provide value to its users?
  3. What problems and challenges does Google face in this case? What management, organization, and technology factors are responsible for these problems and challenges?
  4. Does Google’s business strategy effectively address these challenges? Explain your answer.
  5. How successful do you think Google will be in the future?

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