The Strategic Analysis of Google, Inc.

Running Head: THE STRATEGIC ANALYSIS OF GOOGLE, INC. 1 The Strategic Analysis of Google, Inc. Laura P. Fann Mount Olive College Tillman School of Business BUS 370, International Business Management Dr. Khalid Dubas, Professor of Marketing March 16, 2012 THE STRATEGIC ANALYSIS OF GOOGLE, INC. 2 Introduction Company History Google made it’s beginning in 1996 as a search engine that used links to determine the importance of individual web pages. In 1998 its founders, Stanford University graduate students, Larry Page and Sergey Brin formalized their work, creating the company we know today as Google.

The company that started from two computer science students in a university dorm room, now employs thousands and holds offices around the world. (Google, Inc. ) Company Milestones Sept. 15, 1997 The google. com domain was registered Sept. 4, 1998Google became incorporated 1999Secured $25 million in funding for its operations. 2000Yahoo is using Google search engine—Ad Sense program is launched 2001Company went global; setting up its first international office in Tokyo-added a new chairman of the board, Eric Schmidt, who soon became CEO 2004Google's search index reached eight billion 006Google bought YouTube 2008Launched mobile phone operating system 2010Company was collecting information from open wireless networks and joining Verizon in a net neutrality pact 2011Entered into an agreement to acquire the mobile phone maker Motorola Mobility for about $12. 5 billion. Google agreed to pay $500 million to settle a case involving the importation of illegal prescription drugs into the United States (John P. Mello, 2011) 2012Billionaire George Soros’ firm added shares in Google in fourth quarter(Burton, 2012) THE STRATEGIC ANALYSIS OF GOOGLE, INC. 3 Company Philosophy

Described as “The perfect search engine”, Google has become successful at being better and faster at finding the right answers to search queries. Google continues to push the limits of existing technology to provide a fast, accurate and easy-to-use service that anyone seeking information can access, whether by computer or mobile device. Google, Inc. operates by ten core principles that guide their actions. 1. Focus on the user and all else will follow. Google has always focused on providing the best user experience possible. 2. It’s best to do on the thing really, really well.

Google is in the search business and their goal is to bring the power of search to previously unexplored areas, and to help people access and use even more information in their lives. 3. Fast is better than slow. . 4. Democracy on the web works. Google searches rely on millions of individual posting links on websites to which other sites offer content of value. 5. You don’t need to be at your desk to need an answer. Google is developing new technologies and offering new solutions to the ever increasing mobile market. 6. You can make money without doing evil.

The revenue generated by Google is derived from offering search technology to companies and from the sale of advertising displayed on their site. 7. There’s always more information out there. Researchers continue to look into ways to bring information to people seeing answers. 8. The need for information crosses all borders. The company mission is to facilitate access to information for the entire world, and in every language. 9. You can be serious without a suit. The company culture is casual and with a diverse background of employees with creative approaches to work and life. THE STRATEGIC ANALYSIS OF GOOGLE, INC. 10. Great just isn’t good enough. Through innovation and iteration, Google aims to take things that work well and improve upon them in unexpected ways. (Google, Inc. ) Direct Competitors More than 17. 8 billion explicit core searches were conducted in January. This is down 2 percent from December. Google led the way with 11. 8 billion of the total searches (down 2 percent from December); Bing ended up with 2. 7 billion (down 2 percent), followed close by Yahoo with 2. 5 billion (down 5 percent). Ask Network had 527 million searches (down 1 percent), followed by AOL with 277 million (down 3 percent). Goodwin, 2012) Strengths Google is renowned for its search engine technology and is second to none in the search engine marketplace as it stands. Among its competitors (Yahoo, AOL, msn, infoseek, ask jeeves, etc. ), Google quickly became a household name as searchers discovered that it was not your average search engine. Google set itself apart from its competition by providing more unique information in its searches than the other available search engines. (Alex Harrison, 2011) Google has developed a strong brand equity which tops the list of the world’s most powerful brands averaging about 30% growth this year. Manjoo, NOV2011, Issue 160) Google occupies a place at the top of the minds of online consumers. The word “Google” and “search” are used synonymously. A Google search has become the most recognized method to find information on the internet. (Alex Harrison, 2011) THE STRATEGIC ANALYSIS OF GOOGLE, INC. 5 Website owners are drawn to using Google because of the company’s ability to help these site owners create useful information. Google Ad words are an advertising platform that places relevant text ads to the right of Google search results.

This tool is used by businesses to determine where a website visitor came from, how long they stayed, and how well the information conformed to the user’s needs. (Alex Harrison, 2011) Google’s advertising business just keeps growing and is anticipated to bring in more than $30 billion this year. (Manjoo, NOV2011, Issue 160) Google has consistent revenue streams from their advertising business. Google is the most visited website on the internet, and for this reason, they have no shortage of customers looking to advertise using their platform.

Many technology companies must issue debt and equity to pay for research and design, which can be costly; however, Google has been able to accumulate a significant cash reserve, which allows them to expand and invent at a lower cost than smaller competitors. (Alex Harrison, 2011) Google’s success despite the completion is based on its persistent focus on satisfying consumers by getting them the answers the want quickly and accurately. Google consistently refines its search algorithms, which now considers over 200 factors in assessing site quality and relevance. Judiciary, 2011) Google makes hundreds of changes to their algorithms each year to improve consumers search experience. THE STRATEGIC ANALYSIS OF GOOGLE, INC. 6 Weaknesses Although Google is a company that has grown to be the number one search engine in the United States, a few problems have occurred. Other countries are not open to the amount of information Google needs for certain applications. International reputation is a weakness for the company at this time. As of right now Google is not in a position to satisfy foreign countries cultures. Alex Harrison, 2011) Google survives and prospers on its advertising which can also be seen as strength for the company at this time, but could be a negative factor in the future. Google’s revenue comes almost entirely from advertising and when advertising trends change, Google will need to adapt or else lose revenue. Security is a concern for Google due to its having experienced faulty applications and unreliable system designs. This was witnessed when hackers intruded the 2. 3. 3 and earlier versions of the android tablet allowing disclosure to user’s personal information via open wireless access. Alex Harrison, 2011) THE STRATEGIC ANALYSIS OF GOOGLE, INC. 7 Financial Analysis Exhibit 1 (yahoo finance, 2012) In Millions of USD (except for per share items) | 12 months ending 2011-12-31 | 12 months ending 2010-12-31 | 12 months ending 2009-12-31 | 12 months ending 2008-12-31 | Revenue | 37,905. 00| 29,321. 00| 23,650. 56| 21,795. 55| Other Revenue, Total | -| -| -| -| Total Revenue | 37,905. 00| 29,321. 00| 23,650. 56| 21,795. 55| Cost of Revenue, Total | 13,188. 00| 10,417. 00| 8,844. 11| 8,621. 51| Gross Profit | 24,717. 00| 18,904. 00| 14,806. 45| 13,174. 04| Selling/General/Admin. Expenses, Total | 7,313. 0| 4,761. 00| 3,651. 24| 3,748. 88| Research ; Development | 5,162. 00| 3,762. 00| 2,843. 03| 2,793. 19| Depreciation/Amortization | -| -| -| -| Interest Expense(Income) - Net Operating | -| -| -| -| Unusual Expense (Income) | 610. 00| 0. 00| 0. 00| 1,094. 76| Other Operating Expenses, Total | -| -| -| -| Total Operating Expense | 26,273. 00| 18,940. 00| 15,338. 38| 16,258. 34| Operating Income | 11,632. 00| 10,381. 00| 8,312. 19| 5,537. 21| Interest Income(Expense), Net Non-Operating | -| -| -| -| Gain (Loss) on Sale of Assets | -| -| -| -| Other, Net | 65. 00| 11. 00| 2. 37| 4. 52|

Income Before Tax | 12,326. 00| 10,796. 00| 8,381. 19| 5,853. 60| Income After Tax | 9,737. 00| 8,505. 00| 6,520. 45| 4,226. 86| Minority Interest | -| -| -| -| Equity In Affiliates | -| -| -| -| Net Income Before Extra. Items | 9,737. 00| 8,505. 00| 6,520. 45| 4,226. 86| Accounting Change | -| -| -| -| Discontinued Operations | -| -| -| -| Extraordinary Item | -| -| -| -| Net Income | 9,737. 00| 8,505. 00| 6,520. 45| 4,226. 86| THE STRATEGIC ANALYSIS OF GOOGLE, INC. 8 Google is growing at an alarming rate. As shown in Exhibit 1, Google’s net income has grown from $4. 2 billion in 2008, to $ 9. 7 billion in 2011.

Google’s revenues and profits are growing over time and are moving in a smooth and consistent fashion as shown in Exhibit 1. Google’s revenue has grown from $21. 7 billion in 2008, to $37. 9 billion in 2011. Gross profits in 2008 were $13. 1 billion and have increased to $24. 7 billion for 2011. The profit margin is currently around 25%, which is a slight decrease from previous years, 2009 and 2010. (Google Finance, 2012) Exhibit 2 (yahoo finance, 2012) THE STRATEGIC ANALYSIS OF GOOGLE, INC. 9 Exhibit 2, shows that Google is close to its’ competitors, Microsoft and Apple when it comes to profit margin for 2011.

This is pretty amazing considering how much younger Google is compared to the competition. Environmental Threats The dominant market position of Google's services has led to criticism of the company over issues including privacy, copyright, and censorship. Google CEO Larry Page recently admitted that the greatest threat to Google –was “Google” itself. Security Breach Liabilities Security is Google’s “Achilles Heel” because security clashes with Google’s values, mission, philosophy and culture as Google favors speed and accessibility over privacy and property rights.

Given that Chinese hackers breached Google’s security and stole their entire password system, and that Google could not meet the contracted security requirements of the City of Los Angeles. [ (Cleland, 2011) ] Security remains a huge corporate weakness for Google. This weakness could open up the door to cybercriminals including possible terrorist groups. Cybercriminals are becoming a threat that rivals terrorist groups like al Qaeda, according to the nation’s top law enforcement official. In the not too-distant-future it is anticipated that the cyber threat will pose the greatest threat to the U.

S. states FBI Director Robert Mueller. [ (Cowley, 2012) ] Sovereignty Backlash from Foreign Governments With 55% of revenues Google receives coming from overseas; Google’s growth is at a risk from a growing backlash of foreign governments over Google’s unique sovereignty intrusiveness. THE STRATEGIC ANALYSIS OF GOOGLE, INC. 10 Since it became public that Google worked with U. S. intelligence services, Google’s legendary intrusiveness has increased suspicion of Google overseas. [ (Cleland, 2011) ] Antitrust Franchise Risk

Currently, Google’s business practices are under antitrust investigation by the FTC and DOJ. Google is vulnerable to the FTC’s Sherman Act monopolization investigation because unlike the DOJ, The FTC has Section 5 authority which prohibits “deceptive and unfair” practices. Given Google’s many undisclosed conflicts of interest, it will be relatively easy for the FTC to establish consumer harm. (Cleland, 2011) Growth Opportunities Cloud Technologies Google is focusing on three areas of growth for the upcoming year. The focus will be on cloud, mobile and social technologies.

According to Google Vice President Amit Singh, cloud adoption will accelerate in 2012, especially in small businesses, among which only 10 percent or so have deployed cloud technologies. Google capitalized on the cloud by adding more than 175 new features to Google Apps and offering an SLA (Service Level Agreement) of 99. 99 percent for Gmail. [ (Hickey, 2011) ] Google has cut the price of its Cloud Storage, a hosted service designed for enterprise developers who want to store their applications’ data in the cloud, as opposed to in their own servers. (Perez, 2012) THE STRATEGIC ANALYSIS OF GOOGLE, INC. 11 Mobile Technologies

Google will also continue to enhance its mobile offerings. Forrester Research data predicts more than 77 percent of organizations will support Google Android and iOS devices in 2012. According to Google Vice President, Singh, more than 90 percent of Google Apps for business users have already deployed or are interested in deploying Android devices and Android advancements, such as on-device encryption. VPN and Global Address List (GAL) support in the Android version 4. 0. (Hickey, 2011) Google’s goal is to have their apps working first and best across different mobile platforms and allow anyone to be productive from anywhere.

Google will continue to invest heavily in mobile and soon the products people use on their smart phones and tablets will work even better. Google is definitely on the right path when it comes to its focus on efforts to carve out a position in the mobile networking market. According to research findings from Pew Internet & American Life Project from February 2012, 88 percent of US adults are cell phone owners and nearly half (46 percent) are Smartphone owners. (Project, 2012) It is expected for the volume of global mobile data to rise tenfold from 2011 to 2016, according to Ericsson, the leading maker of mobile network equipment.

The rate is likely to accelerate as more consumers integrate the mobile Web into their daily lives. (O'Brien, 2012) Social Technologies Google+ the company’s recently-launched social network, has 90 million users now (January 20, 2012), from 40 million three months ago. (Sharma, 2012) THE STRATEGIC ANALYSIS OF GOOGLE, INC. 12 Google is making multiple improvements to Google+ every week, while also wrapping Google+ with the controls needed for broader use in larger enterprises with the goal of bringing Google+ to the rest of their products.

This will include incorporating features that make it easier to connect, share, and integrate with the wider world. (Hickey, 2011) Assessment, Prospects, and Suggested Future Direction Google Inc, which revolutionized Internet searches with an easy-to-use website, has itself become an increasingly tricky business to grasp. Analysts say Google is simply putting its fingers in too many pies. Google’s market entries into television, Android mobile phones, and music sales in the past two to three years have left the investment community straining to recognize the company.

Investors are still uneasy about Google's acquisition of Smartphone maker Motorola; this is a challenge facing Chief Executive Larry Page as he positions the company for new growth opportunities. Some are wondering if Google has a clear strategy for generating revenue and growth out of an abundance of initiatives, from Android, Google+, especially since Page and management refuse to offer guidance. [ (Oreskovic, 2012) ] The limited insight Google provides on the details of its non-search businesses has not helped matters, as investors struggle to connect the company's ambitious strategic vision with its income statement. Google is very much in the midst of a transformation," said BGC Partners analyst Colin Gillis. Since replacing Eric Schmidt last April as CEO, the Google co-founder has aggressively tossed out underperforming and non-essential projects and products. The idea is to put "more wood" behind the company's most important arrows, he has said. [ (Oreskovic, 2012) ] THE STRATEGIC ANALYSIS OF GOOGLE, INC. 13 For Google to keep growing, it needs access to a wider range of content on which it can place ads and make money, particularly as the tech landscape shifts and consumers' Internet habits evolve. Any walled-off content is the enemy of Google, so they're trying to pry it open. They did it well with Android, they're trying it with social media and they're trying it with television," said MIT Sloan School of Management Professor Michael Cusumano. [ (Oreskovic, 2012) ] The strategy is not cheap, requiring significant investments for Google to build or buy platforms to reach new content -- adding pressure on the bottom line. And many of the new markets may not be as profitable as the search ad business where Google rules the roost, said Cusumano.

Google+, which does not currently feature ads, is still in its infancy and the company has yet to outline its monetization plans for the service. But Macquarie Research analyst Ben Schachter said the benefits of some of Google's other non-search initiatives, such as the vast amount of online video it now streams across the Web on YouTube, are coming into focus. "The goal at the end of the rainbow is TV advertising," he said. "For years Google has been eating the lunch of print and radio, but TV has held up incredibly well. That will start to change by the second half of this year and into 2013, when Schachter expects that TV advertising dollars will flow to online video providers like Google. [ (Oreskovic, 2012) ] Works Cited Alex Harrison, R. H. (2011, November 9). googlenewsonline. com. Retrieved February 24, 2012, from Google News Online: http://www. googlenewsonline. com/google-swot-analysis. html Burton, K. (2012, February 15). www. bloomberg. com. Retrieved February 15, 2012, from Bloomberg: http://www. bloomberg. com/news/pringt/2012-02-15/soros-buys-google-comverse-while Cleland, S. (2011, November 15). The Top Ten Threats to Google.

Retrieved March 2, 2012, from forbes. com: http://www. forbes. com/sites/scottcleland/2011/11/15/the-top-ten-threats-to-google/ Cowley, S. (2012, March 2). FBI Director: Cybercrime will eclipse terrorism. Retrieved March 2, 2012, from CNN Money: http://money. cnn. com/2012/03/02/technology/fbi_cybersecurity/index. htm Goodwin, D. (2012, February 10). Search Engine Watch. Retrieved February 15, 2012, from www. searchenginewatch: http://searchenginewatch. com/article/2151761/Yahoo-Search-Engine-Market-Share-Slips-in-January-2012 Google Finance. (2012, March 16). Retrieved March 16, 2012, from www. google. om/finance: http://www. google. com/finance? q=NASDAQ:GOOG&fstype=ii# google inside. (2012, February 15). Retrieved February 15, 2012, from www. ginside. com. Google, Inc. (n. d. ). Retrieved February 13, 2012, from www. google. com: http://www. google. com/about/company/ Hickey, A. (2011, December 21). Google: Cloud, Mobile, Social Will Define 2012. Retrieved March 5, 2012, from CRN: http://www. crn. com/232300927/printablearticle. htm John P. Mello, J. (2011, September 27). Doodle Celebrates Google's 13th Birthday: Here are 13 Milestones. Retrieved February 15, 2012, from www. pcworld. com: