In 1996 two computer science PhD students at Stanford University, Sergey Brin and Larry Page, were wondering how they could sort through the massive amount of information that was starting to appear on the Web to find specific and useful information on a topic. Although there were several different technologies, or search engines, available to search the Web for information, none of them seemed particularly useful to Brin and Page because they failed to distinguish between useful and trivial Web sites. Brin and Page decided to build a search engine that not only would examine the words on Web pages and then index them as other search engines did, but also would look at how and where these words were being used and at the number of other Web sites linked to a page. The goal was to have the search engine return a list of Web pages with the most useful appearing at the top.
The name “Google” originated from a misspelling of “googol” which refers to the number represented by a 1 followed by one-hundred zeros. Having found its way increasingly into everyday language, the verb, “google,” was added to the Oxford English Dictionary in 2006, meaning, “to use the Google search engine to obtain information on the Internet.”
By December 1998 the beta version of Google’s search engine had been up and running at the Web for months, answering over 10,000 search queries a day. From that point on growth was exponential. By December 2000 Google’s index included more than 1.3 billion Web pages, and the company was answering some 60 million search queries a day. By 2004 the number of Web pages indexed by Google exceeded 4 billion, and the search engine was handling more than 300 million queries a day. Google’s technology quickly became pervasive. Soon most major Web portals were using Google’s search engine technology, including AOL. Yahoo also signed an agreement to make Google its default search provider, which helped make Google the largest search engine on the Web. Estimates suggested that in 2003 some 75 percent of Internet searches were made using Google.
What was most impressive about Google, however, was that unlike many other dot-com businesses of the 1990s, Google found a way to make money. Google generated revenue from only two sources: (1) the licensing fees it charged to supply search capabilities to corporations, other Internet sites, and wireless telephone companies, and (2) the advertising fees it charged for providing highly targeted text-only sponsor links adjacent to its search results.
The Google search engine attracted a loyal following among the growing number of Internet users, who liked its simple design. In 2000, Google began selling advertisements associated with search keywords, which provided the company with an additional revenue source beyond fees for licensing its search appliance to other Web sites. To make money Google sells to advertisers the words that people put in when they search for something on the Web. Thus means that whoever bids the most for a particular term, say digital cameras, gets their link put at the top of a Google-generated list. Google distinguishes between independent search results and those that are paid for by listing “sponsored links” on its page. However, sponsors do not pay Google unless a user clicks through to them from a Google-generated link.
The ads were text-based to maintain an uncluttered page design and to maximize page loading speed. Keywords were sold based on a combination of price bid and click-throughs, with bidding starting at $.05 per click. Advertisers don’t just pay a set rate, or even a cost per thousand viewers. They bid on the search term. The more an advertiser is willing to pay, the higher its ad will be positioned. But if the ad doesn’t get clicks, its rank will decline over time, regardless of how much has been bid. If an ad is persistently irrelevant, Google will remove it: It’s not working for the advertiser, it’s not serving users, and it’s taking up server capacity. Google understands that its two most important assets are the attention and trust of its users. If it takes too long to deliver results or an additional word of text on the home page is too distracting, Google risks losing people’s attention. If the search results are lousy, or if they are compromised by advertising, it risks losing people’s trust. Attention and trust are sacrosanct. Google pursues a seemingly gratuitous quest for speed: Four years ago, the average search took approximately 3 seconds. Now it’s down to about 0.2 seconds. And since 0.2 is more than zero, it’s not quite fast enough.
Page and Brin insisted that the company would only sell discreet text ads placed near search results and never mix paid keyword-based ads with legitimate search results even though the practice was standard among search engine companies. Also, Google would not place banner ads on its Web site, now would it sell pop-up ads.
While many of its dot-com rivals failed in the new Internet marketplace, Google quietly rose in stature while generating revenue. In 2003 the company made $967 million in revenues and $105 million in net profits. In 2004 revenues surged to $3.19 billion and net income to $399 million.
Google — Founded by Geeks and Run by Geeks
Google is an organisation founded by geeks and run by geeks. According to Stephen Arnold, Google’s programmers are 50%-100% more productive compared to programmers working for their competitors. He based this theory on Google’s competitors having to spend up to four times as much just to keep up.
It is a collection of 650 really smart people who are almost frighteningly single-minded. “These are people who think they are creating something that’s the best in the world,” says Peter Norvig, a Google engineering director. “And that product is changing people’s lives.”
Geeks are different from the rest of us, so it’s no surprise that they’ve created a different sort of company. Google is, in fact, their dream house. It also happens to be among the best-run companies in the technology sector. At a moment when much of business has resigned itself to the pursuit of sameness and safety, Google proposes an almost joyous antidote to mediocrity, a model for smart innovation in challenging times.
Google spends more time on hiring than on anything else. It knows this because, like any bunch of obsessive engineers, it keeps track. It says that it gets 1,500 resumes a day from wanna-be Googlers. Between screening, interviewing, and assessing, it invested 87 Google people-hours in each of the 300 or so people that it hired in 2002.
Google hires two sorts of engineers, both aimed at encouraging the art of fast failure. First, it looks for young risk takers. “We look for smart,” says Wayne Rosing, who heads Google’s engineering ranks. “Smart as in, do they do something weird outside of work, something off the beaten path? That translates into people who have no fear of trying difficult projects and going outside the bounds of what they know.”
But Google also hires stars, PhDs from top computer-science programs and research labs. “It has continually managed to hire 90% of the best search-engine people in the world,” says Brian Davison, a Lehigh University assistant professor and a top search expert himself. The PhDs are Google’s id. They are the people who know enough to shoot holes in ideas before they go too far – to make the failures happen faster.
Google developed a decentralized management schema where employees report directly to multiple managers and team project leaders. This allows for the responsibility of the technology department to be shared amongst multiple senior level engineers and removes the need for a singular department head to oversee the activities of the department. This is a unique approach from the standard management style.
The challenge is negotiating the tension between risk and caution. When Rosing started at Google in 2001, “we had management in engineering. And the structure was tending to tell people, No, you can’t do that.” So Google got rid of the managers. Now most engineers work in teams of three, with project leadership rotating among team members. If something isn’t right, even if it’s in a product that has already gone public, teams fix it without asking anyone.
“For a while,” Rosing says, “I had 160 direct reports. No managers. It worked because the teams knew what they had to do. That set a cultural bit in people’s heads: You are the boss. Don’t wait to take the hill. Don’t wait to be managed.” And if you fail, fine. On to the next idea. “There’s faith here in the ability of smart, well-motivated people to do the right thing,” Rosing says.
Google doesn’t market itself in the traditional sense. Instead, it observes, and it listens. It obsesses over search-traffic figures, and it reads its email. In fact, 10 full-time employees do nothing but read emails from users, distributing them to the appropriate colleagues or responding to them themselves. “Nearly everyone has access to user feedback,” says Monika Henzinger, Google’s director of research. “We all know what the problem areas are, where users are complaining.”
Google focuses relentlessly on the quality of the experience. Make it easy. Make it fast. Make it work. And attack everything that gets in the way of perfection.
How does Google keep Innovating?
Google also understands the capacity of the Web to leverage expertise. Its product-engineering effort is more like an ongoing, all-hands discussion. The site features about 10 technologies in development, many of which may never be products per se. They are there because Google wants to see how people react. It wants feedback and ideas. Having people in on the game who know a lot of stuff tells you earlier whether good ideas are good ideas that will actually work.
One big factor is the company’s willingness to fail. Google engineers are free to experiment with new features and new services and free to do so in public. The company frequently posts early versions of new features on the site and waits for its users to react. “We can’t predict exactly what will happen,” says senior engineer Nelson Minar.
Frequently, new Google enhancements or products appear in its inventory. Google Labs, the experimental section of Google.com, helps Google maximize its relationships with its users by including them in the beta development, design and testing stages of new products and enhancements of already existing ones.
Google’s Competitive Position and Strategy to Sustain Growth
Google’s ability to sustain its strong position among Internet search companies was a function of its ability maintains strong relationships with Internet users, advertisers, and Web sites. Google has a distinctive technology advantage over Microsoft, eBay, Amazon, Yahoo. Google utilizes custom high-performance systems which are cost efficient because they can scale to extreme workloads. This hardware allows for a huge cost advantage over its competitors.
In 2005, Internet users searching for information went to Google more often than to any other site with search capabilities. There was nothing that would prevent Internet users from abandoning Google to use a better search technology. However, the development of a better search engine by a rival could lead to rapid erosion of advertising revenues for Google. Google management believed its primary competitors were Yahoo! and Microsoft.
In August 2004 Google went public, raising over $1.5 billion. With no debt and flush with cash, the company looked set to build on its lead in the search engine business. However, competitors were not sitting on the sidelines. In 2003 Yahoo! purchased a rival search engine company. Overture Services and replaced Google as the search engine on its site with a proprietary search engoine based on Overture’s technology. Microsoft too seems to have its sights set on Google. Microsoft is reportedly working on its own search engine technology, which it plans to integrate with its software.
In February 2003, Google acquired Pyra Labs, owner of Blogger, a pioneering and leading web log hosting website. Some analysts considered the acquisition inconsistent with Google’s business model. However, the acquisition secured the company’s ability to use information gleaned from blog postings to improve the speed and relevance of articles contained in a companion product to the search engine, Google News. Google also purchased YouTube, JotSpot (a company that helped pioneer the market for collaborative, web-based business software), Gapminder’s Trendalyzer software (a company that specializes in developing information technology for provision of free statistics in new visual and animated), Adscape Media (a small in-game advertising company). In 2007, Google also acquired PeakStream Technologies.
In 2004, Google became more involved in the Chinese market when it acquired a 2.6 percent stake in Baidu — the number one search engine in China. Google believed it was essential to develop a local presence in China if it were to aggressively pursue search-based advertising customers in that market since the Chinese language was so complex. In late 2005, Google was moving forward with its strategy in China by recruiting employees for an office located in China, developing a separate brand name for the Chinese market, and launching a Chinese “.cn” site. Google management also opened an operation center in Brazil and Mexico in late 2005 to improve sales and services to Latin American advertisers.
While the company’s primary market is in the web content arena, Google has also recently began to experiment with other markets, such as radio and print publications. On January 17, 2006, Google announced that it had purchased the radio advertising company dMarc, which provides an automated system that allows companies to advertise on the radio. This will allow Google to combine two advertising media-the Internet and radio-with Google’s ability to laser-focus on the tastes of consumers. Google has also begun an experiment in selling advertisements from its advertisers in offline newspapers and magazines, with select advertisements in the Chicago Sun-Times. They have been filling unsold space in the newspaper that would have normally been used for in-house advertisements.
Over the course of the past decade, Google has become quite well known for its corporate culture and innovative, clean products, and has had a major impact on online culture.
Assessment Questions:
- What are the sources of Google’s competitive advantage?
- What value does Google create for customers and advertisers?
- Apply the four building blocks of competitive advantage to Google. Analyse each factor by providing detailed examples from the case.
- What business-level strategy is Google pursuing?
- What corporate-level strategy and international strategy has Google implemented?
Solutions:
Q.1. What are the sources of Google’s competitive advantage?
Unlike other search engines, Google distinguishes between useful and trivial websites. Like other search engines, it examines the words on web pages and then indexes them, but unlike them, it also looks at how and where these words were being used and at the number of other websites linked to a page. It shows a list of web pages with most useful link appearing at the top.
Google search engine is simple and user-friendly as compared to other search engines. The advertisements are text-based and hence the page remains uncluttered, i.e. free from any kind of obstructions to the users, and the page loading speed remains at its maximum.
Google has competitive advantage in terms of its speed of search. It takes only 0.2 seconds, which is quite low as compared to other search engines.
Google also provides value for money, both to the users as well as to the advertisers. To the users, it provides the results timely so that they need not wait. It did not mix the advertisements with the search results keeping the website simple and clean for the users. Moreover, it advertises only text-based advertisements or pop-up advertisements, but not banner ads although this practice has been observed with other search engine companies.
Charges for advertisement in other search engines are either on a fixed rate basis or a cost per thousand viewers, but in case of Google, the keywords or search items are bid on the basis of price per click. In case the users do not click on the advertisement, the sponsors do not need to pay; the ranking of the advertisement declines and finally it is removed from the list by Google. If it is of no use, it is not kept hanging on the webpage till the expiry of the agreed time period, as in case of other search engines. Using this method, Google gains attention and trust of both users and advertisers, thereby giving it a competitive edge over its competitors.
Q.2. What value does Google create for customers and advertisers?
For the customers, Google search engine was kept simple and user-friendly. Advertisements did not clutter the page with banner ads on the website, rather text-only sponsor links were provided adjacent to the search results. As a result, neither did it mix with the search results as in case of other search engines, nor did the page loading speed decrease. Thus, the focus of Google was on getting attention and maintaining trust of the users. It knew that if delivering of the results took long or if there is an additional word on the homepage, it would distract the users thereby, resulting in loss of users and their trust. Later, Google planned to sell pop-up advertisements, but was strictly against banner advertisements also it could bring in more income because of the fact that it would disturb the users in their search.
For the advertisers’ convenience, Google sold advertisements associated with search keywords, not at a fixed rate or a cost per thousand viewers, as in case of other search engines. The advertiser, who bid the most for a particular search term, had its link or its advertisement positioned at the top of the Google-generated list. The bid was based on a price per click, with bidding starting at $0.05 per click. Google distinguished between independent and paid-up search results. It listed the paid-up search results under “sponsored links” on its website, thereby providing a value for their money. Moreover, the money invested by the advertisers was not a waste because the sponsors were not required to pay Google until and unless the link from the Google-generated list was clicked by a user. In case the advertisement is not at all clicked, its rank will decline over time, inspite of the fact that it was of the highest bidder; and if an advertisement is found to be irrelevant, Google will remove it from the list because neither is it in favor of advertiser, nor user and moreover it is eating up the server capacity. This provided value to both the users as well as advertisers.
Q.3. Apply the four building blocks of competitive advantage to Google. Analyze each factor by providing detailed examples from the case.
The four major building blocks of competitive advantage includes: Quality, Customer Responsiveness, Innovation, and Efficiency; all being employed by Google to beat its competitors and reach the current position.
Quality is an essential and distinguishing attribute of something, which includes quality design, durability, reliability and image. Google helps users by differentiating between useful and trivial websites. It not only examines the words on the webpage and indexes them, but also shows how and where the keywords are used and number of other websites linked to a page, with most relevant page appearing on the top. Moreover, Google employs programmers who are 50-100% more productive as compared to programmers working for the competitors by investing 87 people hours in each of the 300 people in 2002. Thus it keeps a regular check by total quality control.
Customer Responsiveness refers to actively or proactively responding to the customer needs or problems by keeping oneself in their shoes. Google keeps finding out what their customers want from time to time and enhances the existing products according to the needs of the users. In case of new features, the Google engineers experiment by adding them to their website for market testing and wait for users to react and provide them with feedback and new ideas. As a result, their final product is customer-centric.
Innovation refers to introducing something new. In 2003, Google acquired Pyra Labs, the owner of Blogger, a leading web log hosting website. Analysts thought that this acquisition does not fit in the Google’s business model. But Google’s innovative idea was to use the information from blogs in order to improve the speed and relevance of articles contained in the search engine, Google News. Other examples of innovation are entry in Chinese markets, combination of internet and radio for advertising, etc.
Efficiency refers to the skillfulness of reducing the cost of the input, i.e. in terms of materials, production, logistics, and overhead. Google uses a technology which is different from that of Microsoft, eBay, Amazon and Yahoo, thereby giving it a technological edge. It uses custom high-performance systems which are cost-effective and can handle extreme workloads. The hardware gives Google a huge cost advantage over its competitors, thereby giving it a competitive advantage through efficiency.
Q.4. What business-level strategy is Google pursuing?
Michael Porter developed the three business-level strategies which include: Differentiation, Cost Leadership and Niche Marketing or Focus Strategy. Google is currently pursuing the generic business-level strategy of differentiation. Differentiation refers to the discrimination between things making it different and distinct. It offers many products and services which are different from the ones in the market. For example, Google purchased the radio advertising company dMarc to get an access to its automated system and get the advertisement of the companies associated with Google on radio. This strategy combined two effective advertising media — internet and radio. Another example of differentiation strategy was to use the unused advertisement space in the offline newspapers and magazines by selling it to the advertisers, with selected advertisement in the “Chicago sun-Times.” By offering unique products and services, Google is able to achieve a competitive advantage.
Q.5. What corporate-level strategy and international strategy has Google implemented?
The corporate-level strategy implemented by Google includes: maintaining strong relationships with users, advertisers and websites. In case the major competitors — Yahoo! and Microsoft — came up with a better and developed search engine than Google, revenue of Google may fall drastically. As a result, the company went public in 2004 and raised $1.5 billion. Now the company had plenty of cash and no debt to support its strategies. In 2003, Google acquired Pyra Labs, the owner of Blogger, a leading web log hosting website. Analysts thought that this acquisition does not fit in the Google’s business model. But Google’s innovative idea was to use the information from blogs in order to improve the speed and relevance of articles contained in the search engine, Google News. Google also purchased YouTube, JotSpot, Gapminder’s Trendanalyzer software, Adscape Media and ParkStream Technologies. The strategy behind this was to expand its operations and features on its webpages. For example, by purchasing Gapminder’s Trendanalyzer software, Google introduced the feature of free statistics on its webpages in order to know the liking of the user towards the page and thus know the page rank.
The international strategies of Google included the strategy of Merger and Acquisition, by which the company gets a ready market for its product and it is easy for Google to understand the economic, political, social and cultural environment abroad. It acquired 2.6% stake in Baidu, the top most search engine in Chinese market, in order to develop a local presence in China and understand Chinese culture and language. Further, to develop a sense of belongingness among the Chinese people, Google recruited Chinese employees for its office located in China, started with a separate brand name and launched a Chinese ‘.cn’ site. With an aim to provide better sales and service to Latin American advertisers, Google opened an operation centre in Brazil and Mexico in 2005.