Katrina J oseph | March 19, 2007 | Tele 590 | Assignment Case Study: Google

Mid-Term Case Study: Google

Question 1
The key factors behind Googles early success were: 1) their innovative search algorithm, 2) their
business model and 3) the management team. They entered the market with a new technology that
provided access to an index of 1 billion web pages using an algorithmic search technology. Googles
business model included paid listings and contextual paid listings, which gave Google an advantage in
selling advertising. Sergey Brin, Larry Page, and Eric Schmidt were the management trio that brought
Google to the forefront of the web search industry. Their keen business sense, innovative ideas, and
engineering and business experience has made Google the powerful company that it is today.
They were able to enter the market and effectively execute a well thought-out business strategy. In my
opinion, they did everything right in their early years. What stands out as a strong tactic was building
upon their algorithmic search technology. By focusing solely on licensing its search technology to
Yahoo! and other third-party sites, Google was able to gain a strong foothold in the web search industry.
With Googles introduction of cost-per-impression and click-through-rate, they became a threat to
Overture, the leader in paid listings.
In analyzing what Google did wrong, I would say that they could have done a better job with customer
service. Many customers and industry analysts observed that Google failed at providing customers with
timely, personalized service. In addition, Googles management, Brin, Page, and Schmidt, were
reported to be unresponsive, self-centered, and dangerously cocky.
Because bad customer service can damage your corporate image, I would have hired an image
consultant to assist management in improving customer perception about the company. I would
concentrate on training for the customer service and technical support staff. I would train the customer
service staff to greet each customer with professional, personalized care and ensure that their questions
and concerns were addressed in a timely manner. I would also focus on ensuring that the technical
support staff provided customers with professional, personalized care from initial contact through to
problem resolution.
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Question 2
The strategic dynamics of the search business involve using a search algorithm to provide users with a
listing of the web pages in which they are searching. When the user enters a word or phrase into the
search text box, a listing of web pages is displayed. Web search providers make their revenue in
advertising that is displayed on the web page listing the results. Because Googles was successful as a
paid listing provider, it expanded into contextual paid listings. Contextual paid listings appear on web
pages that provide editorial content. Other strategies are searching for product pricing (i.e. Froogle),
searching based on past searches (i.e. Personalized Search), local search and vertical search, desktop
search (i.e. Google Desktop), online and offline database search (i.e. Google Base), and books and video
(i.e. Google Video and YouTube).
Alternative competitive strategies for the search business are searches for food, dining, entertainment,
and transportation. I recommend searching for restaurants because it is a hot market right now and there
is an opportunity for an increase in profits as more and more restaurants automate their food ordering
process.
Question 3
The trends in the web search business are: 1) ranking paid listings by cost-per-click, 2) ranking paid
listings based on cost-per-impression and click-through-rate, and 3) using search algorithms to match
products and services with customers. Overture introduced cost-per-click, which required the advertiser
to pay only when the user clicked on an ad. Google introduced cost-per-impression, which required the
advertiser to pay when the user viewed the ad. Google improved on their idea with the introduction of a
ranking derived from a ratio of the actual click-through-rate and its statistically derived click-through-
rate.
I do not expect the web search business to become more concentrated because there are high barriers to
entry. New firms will find it difficult and expensive to enter the market because Google has the market
share.
Question 4
In renewing its deal with AOL, Google could afford to pay AOL more than 100% of the revenue
generated from AOL searches. Google had an operating income of $2 billion as well as cash and
equivalents of $8 billion. Microsofts maximum affordable bid for AOLs search traffic failed in
comparison, according to AOL. Microsoft had proposed that it and AOL form a joint venture to sell
advertising on their own sites and eventually on other sites as well. There were negotiations between
Google, Yahoo!, and Microsoft/MSN in December 2005. Google and Microsoft were in separate rooms
of the Time Warner Center in Manhattan and executives from AOL walked back and forth between
them. In addition to the $1 billion, Google agreed to give favored placement to AOL throughout its site
and won the deal.
In order to determine what to bid, I would view the J P Morgan value of $13.7 billion and then conduct a
market analysis to see how much my company could possibly earn from the deal. The most I would bid
would be $750 million. This is because I only have an operating income of $2 billion. I would not want
to offer more with the chance that AOL would accept $750 million [which is slightly higher than 5%
($685 billion) of J P Morgans recent value of the unit]. If AOL did not accept my offer, I would
increase my bid incrementally, not to exceed $1 billion. I would not want to exceed $1 billion because
my operating income is only $2 billion. Exceeding more than half of my operating income would not be
wise considering my total expenses.
Question 5
In addition to enhancing its core search business, Google could also branch out into new areas. It has
the corporate structure in place for such innovation. For example, the 70/20/10 rule allocates
engineering efforts (70% engineering efforts, 20% projects that extend the core, and 10% new business)
Googles small project teams could concentrate their technological efforts in many areas. The company
strongly encourages the development of new projects which are high-risk and high-reward.
I would highly recommend that Google branch out into the portal business and go up against the
industry leader Yahoo. Yahoo sees Google as a competitive threat because they have first-hand
knowledge of their capabilities. Thats because Yahoo was an early Google investor. If Google were to
become a full-fledged portal like Yahoo, I think Google would have a large following. If the
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information was structured into channels, like Yahoos portal, users could easily gain access to many
features. If Google could develop a portal for the web and mobile device (web interface and
downloadable application) that was seamless and easy to use, they would capture the market share.
Google management has said that they are not in the portal business, they are in the business of making
all of the worlds information accessible and useful. Although that may be true, they have expressed an
interest many times in providing content. Through strategic partnerships like YouTube, Google can
exceed as a portal providing access to many channels of content.
Question 6
I view Googles distinctive governance structure, corporate structure, and organizational processes as
strengths. They have created a corporate synergy that has worked well for them. Although potential
investors expressed reservations about Googles governance structure mainly the top management trio.
Google responded by explaining how the internal process works among the three of them. Apparently,
the three managers have the type of relationship that works well with this type of structure.
Googles corporate structure encourages creativity among their staff, which leads to employee
satisfaction and a low employee turnover rate. A potential limitation of the corporate structure would be
inefficient training in the area of customer service. Google must put forth an effort to change customer
and investor perception of Googles response to their needs.
The corporate values, which are 1) dont be evil, 2) technology matters, and 3) we make are own rules,
are unique and show the personalities of the management. These values encourage the staff to be ethical
in their decision-making, stay abreast of emerging technologies, develop innovative technologies, and
present new ideas.
Question 7
Creating and sustaining a culture of innovation and entrepreneurship in a company like Google would be
much easier than most companies. This is because the structure is already in place to initiate programs
in the various departments. I would provide the employees with incentives to create new products and
services by offering quarterly contest that would provide winners with paid vacations, dinners, and
monetary bonuses. I would also host an entrepreneur startup program for employees who want to
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branch out with their own businesses. There would be two levels: 1) employees that want to branch out
under Google as a subsidiary and 2) employees that want to branch out on their own. Both types of
startups would receive the knowledge necessary to exceed in the technology arena.
I would also create a mentorship program that allowed junior-level managers to work with senior-level
managers in order to gain a better perspective of the corporation and prepare to move up in the
company. This would increase employee retention and create an atmosphere of teamwork.
Question 8
I think Google bought YouTube because: 1) they saw YouTube as a high-risk, high-reward service to
add to their growing list of web services, 2) they had the financial resources, and 3) they saw the
purchase as a good public relations move. Google said that they are not in the content business. By
purchasing YouTube, the leader in online video, they automatically placed themselves in the industry of
providing content without having to develop or maintain the content themselves. Google is definitely
interested in providing video content because they provide the service Google Video.
Google acquired YouTube for $1.65 billion in stock. The combination of the two companies created
new opportunities for users and content providers. Google is in a very good financial situation and can
afford the luxury of making a purchase of this magnitude. In addition, what better public relations move
than to purchase a small company for such a large amount of money?
I would have made the purchase. I see the purchase of YouTube as a move in the right direction in
Googles mission to make all of the worlds information accessible and useful. YouTube has built an
exciting and powerful media platform that complements Google's mission. The Google/YouTube
combination has been very successful. YouTube has struck numerous partnership deals with content
providers such as CBS, BBC, Universal Music Group, Sony Music Group, Warner Music Group, NBA,
The Sundance Channel and many more. The deal has proven to be a good choice for both companies.