A Strategic Analysis of Google, 2010. Joe Morrison International MBA Candidate (Graduation May 2011).

IE Business School

Summary: This paper was written in 90 minutes in early October in order to respond to a 2010 Fortune Magazine article examining Googles challenges in their current operating environment. The assignment was part of my Strategic Management class under direction of IE Business School professor Juan Santalo. At the time, Googles record third quarter earnings had not been announced, so criticism of Google was rising due to the firms perceived inability to grow effectively beyond search ads. Please note I have not edited the paper since its original writing, other than cleaning up punctuation, grammar and spelling. Question a. Online search analysis; identify main threats & opportunities which any company must address when formulating their strategy. Answer A: Lets use the Value Net model, instead of Porters five forces, formatted as a table below to analyze the industry. Customers of Online Search For this industry, its Companies, which need increasingly effective ways to market to people as the media landscape changes globally. I would argue that because of the above, in fact online search advertising remains a growth industry, and attractive, despite the articles claim to the contrary. As the Internet becomes the preferred medium for delivery of content worldwide, and lines between home appliances (TVs), their ability to deliver advertising, and the general proliferation of Internet-connected devices continue to blur, online search advertising will become even more important. Advantage: Google, which has dominant online advertising market share both for keyword searches and display ads (see DoubleClick, below). The lead here is not as significant as it could be, however, because companies will be open to trying new avenues for marketing which are growing. Competitors (including substitutes) Microsoft BingNew, direct effective competitor showing signs of growth with a more complicated interface. FacebookA closed network with 17% of Suppliers Internet Content Providersthat is, the stuff people do online, for which they generally use Google as the gateway. Keep in mind that one of the key suppliers, #2 globally, is someone which Google has acquired (Youtube, owning 10% of global time spent on the Internet) Advantage: Google with Youtube, Facebook with its users, have the content lead.

Complementors The People of Planet Earthand again here, we see more evidence of a growth market, as emerging markets and newly-industrialized nations flock to the web more frequently. The

global time spent online, which is attempting to use an envelope attack to embrace the entire Internet with its like buttons and Open Graph technology. TwitterAnother easy to use peer-to-peer content network, which recently launched promoted tweets. Double ClickFormerly the leader in high-tech display advertising online, but acquired by Google (smart move, laying a foundational future for the firm as the Internet continues to evolve). Advantage: Almost certainly, Google, because of its general best of breed online search product, still the most efficient way to search the web. This killer app has allowed the firm to become the online search giant it is today.

people are the complement to Google being able to effectively sell its advertising to companies. While Googles advantage could again be improved here globally in China its lagging behind Baidustill, in terms of industry attractiveness, world growth is not all about China, and its likely Google will reap rewards. Advantage: Slightly, again due to economies of scale (and time diseconomies of scales for followers to join in), Google.

Question B: What are Googles principal strategic resources? Argue carefully your answer. Answer B: Keeping in in mind that per Porter, for the industry in which it operatesand lets stick to online search above, for reasons of simplicitythat a resource must be i. ValuableRepresenting a real advantage; ii. ScarceOther firms cant utilize it, or something like it; iii. AppropriableIt can be used by the firm; then this is my analysis.

Online Search Engine

YouTube

Valuable, scarce and appropriable?

Yesthe firm has effectively taken the eyeballs of millions of people which rely on its search engine and leveraged

Unique for sure, most certainly valuable due to its user base, and unique content properties. Even better its appropriablethe article references

Google Apps (including Office, Gmail, Picasa, Maps, Images, Chrome Browser, Earth) There are twofold advantages here: Appropriability has been confirmed; Google has leveraged applications such as Gmail to provide

Android + AdMob

A possible new combination that not only provides Google with a platform lead in smartphones, but which is then leveraged through mobile paid

that asset against the content of the web in a relevant fashion. This has resulted in Google taking the premier position in online paid search. No one else has of yet developed a better search engine.

that Google has recently been able to leverage this with media companies.

content-connected search to users. Presumably this appropriability can be stretched further (in Google Docs, for instance, a company typing up requests for construction proposals might see paid-premium ad from a nearby company.)

Search via AdMoband that ties into their core business of online advertising as another channel attractive to businesses.

Question C: Evaluate Googles corporate strategy. Are they creating value or destroying it with this? Answer C: Almost certainly, Google is destroying value with their diversification efforts, and attempting to pursue a transferring skills Corporate Strategy, where they hope to leverage on their impressive engineering experience to build strong new businesses. This is because per Porter, when it comes to three tests of attractiveness, cost of entry and better off, this cannot be effectively identified in the murky, unknown bleeding-edge future of the tech industry and the hundreds of acquisitions that cash-rich Google is employing. For instance, will Google ever become a giant of online travelunlikely, we would think. So not only does the ITA Software acquisition likely fail the better off test, but will the firm ever get back the $700 million dollars it has spent on ITA Software, for cost of entry? Again, most likely notalthough its impossible to say because the tech industry evolves in surprising and unknown ways. However, by contrast, the money Google has spent on Double Click and AdMob will likely be recouped, and the money spent in the bidding war for YouTube can be chalked up to providing a content advantage for the firms online search. In closing, in a nutshell: Google is destroying value because its throwing everything at the wall, and buying up a lot of properties it doesnt know what to do withand the reason it doesnt know what to do with them is because its operating in an industry that is very unpredictable.

Question D: Based on the above, what is your strategic recommendation Google for both online search and corporate strategy? Answer: For online searchyoure the leader, dig in and crush your followers! Do not allow any new entrants to online search, and do what you have to punish them. For example, an innovative step for Google might be to launch a secondary search service that directly competes with the multifaceted Microsoft Bing! This style of online search, which is content-rich, is something Googles premier resource currently eschews, focusing on simplicity. Then it can utilize its paid search applications along with its new content-focused search engine. In this way, Google should utilize the not to lead strategy from the classic The Art of Strategy (Dixit & Nalebuff, Chapter 1,Ten Tales of Strategy) its ahead in the sailboat race and it has the resources to pursue many avenues. One of the avenues it should definitely pursue is that if one of their competitors is showing success in online search with any new ideathen copy and attack it. Continue to develop resources, meanwhile, improving your core product. Google has the money to do it all. For corporate strategy, again I think that because of industry unknowns and rapid movement, Google is doing the right thing here by putting its feet in many different pools, although it is doing so ineffectively and in an undisciplined fashion. Some tightening of scope might help Googlewhich has a mandate that all employees spend 10% of their time dreaming up something newwith their vast acquisitions. For evidence that Google fails with their new ventures, recall Dodgeball, a placebased game acquisition that the founders left in Google hands, promptly leaving to walk off and found Foursquare, whose success Google presumably would have enjoyedthus, it is almost certain that the execution of their corporate strategy is poor. How to do better? Think back to the PepsiCo caseutilize the role of corporate headquarters more effectively and demand better stretch targets or measurements from their new ventures. But in a world where the value of a sneezing panda is measured by the millions of eyes that watch it, I dont blame Google for throwing everything at the wall, and seeing what sticks.