Ashton Clarke

February 7, 2018
Business Strategy and Policy
Case Analysis: Alphabet, Inc

Introduction

Alphabet, Inc. is a holding company, which engages in the business of acquisitions and
operations of various different companies. The company was founded by Lawrence E. Page and
Sergey Mikhaylovich Brin on October 2, 2015 and is headquartered in Mountain View, CA. It operates
through the Google and Other Bets segments.
The Google segment includes its main Internet and software products such as Search, Ads,
Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome, Google Play. Google is also responsible
for the company’s hardware products as well, such as Chromecast, Chromebooks and Nexus.
The Other Bets segment includes businesses such as Access or Google Fiber, Calico, Nest,
Verily, GV, Google Capital, X, and other initiatives. Other Bets is engaged in sales of Internet and TV
services through Google Fiber, sales of Nest products and services, and licensing and research and
development services through Verily.

Looking at the Numbers: Regional Revenue- Revenue Analysis(ch 5)

What percentage of 2017 revenues are from outside the company's home country?
Mergent Online reports that the total revenue for Alphabet, Inc in 2017 was $110,855,000 USD.
However According to the online statistics portal Statista, in 2017 Alphabet’s revenue was regionally
reported to have only 47% of its revenue from inside of it’s home country of the United States. The
remaining revenue was reported as 33% from Europe, the Middle East and Africa, 15% from Asia and
the Pacific and 5% from the “Other Americas”, which are defined as Latin and South America.
Despite the fact that Mergent Online reports an increase in Alphabet’s revenue in 2016 which
was $ 90,272,000 USD, the regional revenue distribution is slightly different from last year’s. Statistia
reported the regional revenue for Alphabet in 2016 as having 47% from the United States, 34% from
Europe, the Middle East and Africa, 14% from Asia and the Pacific and 5% from the “Other
Americas”.

Stakeholder Impact (& Corporate Social Responsibility)Analysis

Who are the stakeholders and what are their interests?

Alphabet’s stakeholders can be segmented into six abstract groups: Employees, Investors
Communities, Government, Advertisers and Users.
Firstly, Users are individuals and organizations that use Google’s products(primarily but also
Other Bets products). In general, these stakeholders do not necessarily pay the company. For example,
users include people who use Google’s search engine and Chrome. This stakeholder group is interested
in the usefulness of the company’s products. These stakeholders are important because their behaviors
define the company’s popularity. Google’s popularity corresponds to the firm’s business value.
Therefore to the firm, the user is the highest priority. Alphabet’s business philosophy states: “Focus on
the users and all else will follow.” Every Alphabet product is developed with the user’s needs in mind.
Doing this, the firm is effectively able to address this stakeholder group.
Employees are the second priority among Alphabet’s stakeholders. Employees are interested in
proper compensation and a rewarding experience in working for the company. For example, many
workers want to work for Google because the company is perceived as one of the best firms to work
for. This stakeholder group is important because they define the company’s capabilities, such as the
capability to innovate rapidly. Alphabet’s CSR efforts address the interests of its employees as a major
stakeholder group through competitive compensation and a fun workplace design. The company’s
compensation strategy includes high salaries and various incentives and benefits, such as free meals
and flexible work flows. Google’s facilities are also fun workplaces where workers can exercise, play
games and enjoy sharing ideas with each other. Also, the company indirectly addresses the working
conditions of suppliers’ employees through the Google Supplier Code of Conduct, which covers
concerns on employment practices and occupational health and safety. As a result, Alphabet’s CSR
efforts effectively satisfy the interests of employees as stakeholders in the business.
Since it went public in 2004, Alphabet now considers it’s investors as a major stakeholder
group which influences activities focused on corporate social responsibility. Investors are interested in
ensuring that Google grows its profits. Investors are important stakeholders because they determine the
availability of capital that the company uses in its business. Through Google and Other Bets Alphabet
is usually focused on providing both useful and profitable products to satisfy not only users and
advertisers but also investors. The usability of Alphabet’s products are what have made them a “go-to”
brand for many individuals and companies. It is also important to note that Alphabet’s research and
development are also a key part of the company’s approach to it’s corporate social responsibility as
they aim to provide products that are profitable to the company.
A significant part of Alphabet’s success through Google is based on the ability of the firm’s
efforts to satisfy the needs of advertisers as a stakeholder group. Advertisers are the main source of the
company’s revenues. These stakeholders are interested in getting effective services, such as online
advertising campaigns. Advertisers and other customers are an important stakeholder group because
they directly determine Google’s financial performance. Alphabet efforts to address the interests of
advertisers and customers based on the firm’s popularity. As noted, the prioritization of the stakeholder
group of users makes the company popular. In turn, this popularity increases the firm’s market reach
and effectiveness. Thus, advertisers and other customers benefit more from the firm’s services.
Google’s holistic efforts satisfy the interests of the stakeholder group of advertisers and other
customers.
Governments are a major stakeholder group. They affect Alphabet through regulations. The
company deals with many governments because its business is global. As stakeholders, governments
are interested in ensuring Google’s regulatory compliance. These stakeholders are important because
they can approve or prohibit Google’s business operations in their jurisdictions. Google’s holistic
approach involves an emphasis on following the law. The company’s business philosophy states: You
can make money without doing evil. To follow this philosophy, the firm ensures that all of its business
activities comply with regulatory requirements. As a result Alphabet’s policies comply with the
interests of governments as stakeholders.
Finally, communities are another important stakeholder group in Alphabet’s business model.
Communities are defined as any groups of individuals that are interested in direct or indirect benefits
that they get from the company. Theoretically firms can benefit the community through charity,
philanthropy and other related activities. Communities are important stakeholder group because this
group, can affect both the user’s and customer’s perception of and response to Alphabet products and
services. Alphabet’s CSR efforts include charity programs through Google.org, which have provided
more than $100 million in grants and investments. Google.org aims to address various social and
environmental issues such as climate change, global public health, and global poverty. In addition, to
address the stakeholder group of communities, Google also includes international environmental
standards and ethics in its Code of Conduct. These efforts also relate with the firm’s philosophy of
making money without doing evil. As a result, Alphabet has had considerable effectiveness in
satisfying the interests of the stakeholder group of communities.
 Overall, Alphabet’s corporate social responsibility to its various stakeholder groups is
satisfactory. The company has programs and policies that address the interests of all stakeholder
groups. The company’s philosophy, focus on the user and all else will follow, has led to useful and
popular products that make the business profitable and beneficial to users, customers and investors. In
addition, the firm’s philosophy, you can make money without doing evil, pushes Google to engage in
CSR activities that benefit the stakeholder groups of employees and communities and satisfy regulatory
requirements.

P.E.S.T.E.L. Analysis

Political Dimension
For the past few years, there has been widespread criticism that Alphabet has started to become
a monopoly in various industries it operates in. This has led to action in the form of anti-trust laws,
particularly in Europe. There have been calls for Google to be broken up or for it to change the way it’s
algorithm conducts searches. There has also been some criticism that Google has too much control over
the flow of information. Social scientists Robert Epstein and Ronald E. Robertson have even made the
claim that Google’s search results could influence the outcome of elections, similar to the way
Facebook is claimed to have influenced the most recent US presidential election. This could lead to
calls for nationalization or stricter government oversight of Google services and products.

Alphabet is one of many U.S. companies that stashes cash in foreign bank accounts to avoid high
American corporate income taxes. There is growing political pressure in the United States to force
these companies to bring that money into the country. If this occurs, it could alter Google’s cash flow.
This could also lead Google to make costly foreign acquisitions just to avoid taxes. Additionally,
Google has not been able to enter some potentially lucrative markets, such as China, because of
political reasons. This could limit the Alphabet’s future global growth.

Economic Dimension
Alphabet has accumulated a huge amount of cash, which makes it very vulnerable to inflation.
A sudden drop in the value of either of currency could reduce the company’s value. The large amount
of money Google keeps overseas makes it very vulnerable to exchange rates and the currency market.
If the dollar is strong, Google could lose a lot of money if it is forced to bring a lot of cash back into the
United States. The company could also lose money if the dollar is weak because it could be forced to
exchange a stronger currency for a weak dollar. A sudden drop in Alphabet’s high stock price could
hurt the company by reducing its market capitalization.

Social Dimension

Socio-cultural factors too have a deep impact on Google’s business. New social trends and
changing demographic patterns can be favorable or unfavorable for Google’s business. In the recent
years, the use of social media has increased which is beneficial for its competitors like Facebook.
Facebook has emerged as its biggest competitor in mobile ads. Increased use of mobile devices is a
trend having both positive and negative implications for Google. On the one hand it has led to
increased competition between Google and Facebook, on the other, it has brought some new
opportunities for Google. The increased use of virtual teams and other trends like telecommuting have
also led to increased use of Google apps and services. Demographic changes and changing consumer
attitude towards online services too have an impact on Google. The millenials access a wide range of
services online. They are one of the most important customers for Google and its social media channels
like YouTube and Google Plus. Google’s popularity as a search engine is a key factor driving its
business and revenue and still a lot depends on its social perception. Google is marketing its brand in
various cultures using localized marketing techniques to create a better brand image and perception.

Technological Dimensions
Google is a technological giant and therefore any kind of technological change can have a deep
effect on its business. The entire business model of Google is based on technological innovation. It
invests a lot on research and development to keep ahead of its competitors. However, Google’s
competitors like Microsoft and Amazon are also just as relentless in terms of innovation. This keeps the
pressure of competition very high for the technological giant. Its competitor Apple is trying to close
Google and Microsoft out of its eco-system by developing services that cater to its customers without
depending on Google. It is planning to throw Google out of Apple devices by making use of Artificial
Intelligence. Apple products are made in a manner to be compatible with Apple’s products and services
mainly. Google has added voice recognition feature to its search engine which had led to increased
popularity of the search engine and its brand.

Environmental Dimensions
Google’s business model is heavily dependent on data centers and other Internet infrastructure
that use large amounts of electricity. Efforts to control global warming by encouraging the use of
costlier green energy sources to produce electricity could raise Alphabet’s operating costs. At some
point Google might not be able to offer free services as it has in the past. This may cause conflicts with
its core philosophy in relation to the environment
Sustainability is just as important for Google as the other major businesses. Investing in
sustainability does to just reduce operational costs for the technological giant but also improves its
brand recognition and image. Apart from investing billions in renewable energy projects, Google is
also focused at building products and services that help others do business sustainably. Its earth engine
creates a living map of forest loss and Google also tracks illegal fishing over billions of square miles in
the ocean. Google is not just committed to reducing its carbon footprint and increasing the production
and use of renewable energy but to the protection of environment in many other ways.

Legal Dimensions
Legal factors are another important area that require careful attention from the big businesses.
Compliance is important. Otherwise, the fines can reach billions as came to light in the anti-trust cases.
The fine amount in the case of EU anti-trust issues can be 3 billion Euros. Other legal areas that can
influence Google are intellectual property rights and privacy of the users. Google makes its privacy and
user data related policies public before collecting data for various purposes. Now, when Google is
entering financial services too, an additional set of laws will be its problem. The world of financial
services is webbed by laws and regulations which can be an additional trouble for the search giant.
S.W.O.T. Analysis

Strengths
Google’s success is directly based on its ability to wield its strengths. In the SWOT analysis model, a
company’s strengths must be sufficient to support its growth. The following are Alphabet’s strengths:
1. Strong brand image
2. Patented proprietary products
3. Diversified business
4. Large organizational size
These strengths indicate that Google is growing and has improved over time. The company’s
diversification of products shows that its business is expanding. The strong brand image, patents and
large organizational size enable the company to fight off competition and new entrants.

Weaknesses
In spite of its market dominance, Google’s weaknesses present challenges to its business. In the
SWOT analysis model, a firm’s weaknesses can prevent its growth. The following are Alphabet’s
weaknesses:
1. Dependence on the Internet
2. Minimal physical presence

Dependence on the Internet means that Google waits for Internet coverage to improve in
developing countries before it could expand most of its operations, such as online advertising, in those
countries. The company is also a mostly online business, which means that it is weak in competing
against firms with significant physical presence, like Apple.

Opportunities
The firm’s opportunities are mainly based on technological changes. In the SWOT analysis
model, opportunities are channels for business growth. The following are Alphabet’s opportunities:
1. Tap more mobile users
2. Expand Google Fiber
3. Penetrate markets with consumer electronics
Alphabet can exploit the current trend of increasing mobile device usage by offering mobile-friendly
products. The company can also expand its Fiber coverage to generate more revenues for the business.
In addition, the firm can boost its aggressiveness in offering consumer electronics, such as Google’s
Nexus devices.

Threats
Threats can reduce Google’s performance. In the SWOT analysis model, threats can prevent
business growth. The following are the significant threats facing Google’s business:
1. Tough competition
2. Imitation of some products by foreign competitors
The company faces tough competition. Competing firms include large ones like Yahoo and Apple, as
well as start-ups and regional/national firms offering products similar to Google’s. Other firms can also
imitate the company’s products, such as its Nexus consumer electronics.
Overall SWOT Analysis
Alphabet’s SWOT analysis shows that the company has adequate strengths. To address its weaknesses,
the company must improve its physical presence, such as through promotions and opening of more
physical stores. The company has already started opening physical stores in the United Kingdom, but
has not continued to do so in recent times. Based on this SWOT analysis, the firm must emphasize
efforts against the threats of competition and imitation. Google can expect better performance upon
effectively addressing the strategic factors identified in this SWOT analysis.
VRIO

What type of
Organization (Ability
Valuable Rare Inimitable competitive
to Exploit effectively)
advantage is this?
Technology
Yes (due to the large
Infrastructure
Yes Yes amount of capital Yes SCA
(Huge Database
required)
Centers)
Innovative
Yes Yes Yes Yes SCA
Services
Google Campus Yes No No Yes t

Alphabet is one of the world's best companies and it is hard for anyone to argue against that.
They have an enormous amount of market share and capital and for that, they are able to create some
amazing things. Google's technology infrastructure is unmatched. They have an enormous amount of
database centers to hold all of the information that they gather from around the world. According to
sources, Google has over 900,000 servers around the world at 36 different locations with each location
costing around $300-600 million to produce. On top of that, the collective total uses less than 1% of the
power used by data centers worldwide. These immense amount of data centers show why Google is
able to be the largest information provider in the world and generate this information at extremely high
speeds to reach their customers in a matter of seconds. Another one of Alphabet’s great competitive
advantages is their innovative services. Google has created everything from Gmail and Google + to
Google Applications and operating systems. On Wikipedia, it lists over 100 services that they provide.
No other company at this time is able to compete with Google with these innovative services, their
ability to provide innovative solutions to a number of different problems is definitely a sustainable
competitive advantage.
The last competitive advantage, which we believe gets overlooked by many people, is their Campus
headquarters. Alphabet provides dorm rooms, gyms, a cafeteria, free bikes and a range of things to
entertain their workers. This campus leaves their employees very happy when they are in work, which
studies show, leads to more productivity. The campus allows workers to stay for longer amounts of
time and essentially create more solutions. More and more companies have started to implement this
though, which makes this only a small temporary competitive advantage.

Porter’s Five Forces Model: Technology and Alphabet, Increased

Threats of New Entrants
New entrants in Internet Information Providers brings innovation, new ways of doing things and put
pressure on Alphabet Inc. through lower pricing strategy, reducing costs, and providing new value
propositions to the customers. Alphabet Inc. has to manage all these challenges and build effective
barriers to safeguard its competitive edge.

How Alphabet Inc. can tackle the Threats of New Entrants

 By innovating new products and services. New products not only brings new customers to the
fold but also give old customer a reason to buy Alphabet Inc. ‘s products.
 By building economies of scale so that it can lower the fixed cost per unit.
 Building capacities and spending money on research and development. New entrants are less
likely to enter a dynamic industry where the established players such as Alphabet Inc. keep
defining the standards regularly. It significantly reduces the window of extraordinary profits for
the new firms thus discourage new players in the industry.

Bargaining Power of Suppliers

All most all the companies in the Internet Information Providers industry buy their raw material from
numerous suppliers. Suppliers in dominant position can decrease the margins Alphabet Inc. can earn in
the market. Powerful suppliers in Technology sector use their negotiating power to extract higher
prices from the firms in Internet Information Providers field. The overall impact of higher supplier
bargaining power is that it lowers the overall profitability of Internet Information Providers.

How Alphabet Inc. can tackle Bargaining Power of the Suppliers

 By building efficient supply chain with multiple suppliers.
 By experimenting with product designs using different materials so that if the prices go up of
one raw material then company can shift to another.
 Developing dedicated suppliers whose business depends upon the firm. One of the lessons
Alphabet Inc. can learn from Wal-Mart and Nike is how these companies developed third party
manufacturers whose business solely depends on them thus creating a scenario where these
third party manufacturers have significantly less bargaining power compare to Wal-Mart and
Nike.

Bargaining Power of Buyers

Buyers are often a demanding lot. They want to buy the best offerings available by paying the
minimum price as possible. This put pressure on Alphabet Inc. profitability in the long run. The smaller
and more powerful the customer base is of Alphabet Inc. the higher the bargaining power of the
customers and higher their ability to seek increasing discounts and offers.

How Alphabet Inc. can tackle the Bargaining Power of Buyers

 By building a large base of customers. This will be helpful in two ways. It will reduce the
bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its
sales and production process.
 By rapidly innovating new products. Customers often seek discounts and offerings on
established products so if Alphabet Inc. keep on coming up with new products then it can limit
the bargaining power of buyers.
 New products will also reduce the defection of existing customers of Alphabet Inc. to its
competitors.

Threats of Substitute Products or Services

When a new product or service meets a similar customer needs in different ways, industry profitability
suffers. For example services like Dropbox and Google Drive are substitute to storage hardware drives.
The threat of a substitute product or service is high if it offers a value proposition that is uniquely
different from present offerings of the industry.

How Alphabet Inc. can tackle the Treat of Substitute Products / Services
 By being service oriented rather than just product oriented.
 By understanding the core need of the customer rather than what the customer is buying.
 By increasing the switching cost for the customers.

Rivalry among the Existing Competitors

If the rivalry among the existing players in an industry is intense then it will drive down prices and
decrease the overall profitability of the industry. Alphabet Inc. operates in a very competitive Internet
Information Providers industry. This competition does take toll on the overall long term profitability of
the organization.

How Alphabet Inc. can tackle Intense Rivalry among the Existing Competitors in
Internet Information Providers industry
 By building a sustainable differentiation
 By building scale so that it can compete better
 Collaborating with competitors to increase the market size rather than just competing for small
market.

Implications of Porter Five Forces on Alphabet Inc.

By analyzing all the five competitive forces Alphabet Inc. strategists can gain a complete picture of
what impacts the profitability of the organization in Internet Information Providers industry. They can
identify game changing trends early on and can swiftly respond to exploit the emerging opportunity. By
understanding the Porter Five Forces in great detail Alphabet Inc. 's managers can shape those forces in
their favor.

Recommendation to Alphabet CEO

It would be advised that Apple continue to work on improving their current products and
services to consumers while also making their prices for those products and services affordable to the
target consumers. Despite the issues that the company has encountered now at the start of the yea, they
are still a leader in all of the markets they participate in. It would be unwise to note that complacency
on Apple’s part can begin to cause problems for the company, especially if the firm’s current problems
are not properly resolved.

References