Twc Google

MGMT002 – Technology and World Change G4 Business Case: Google Written Report Prepared for: Dr. Teo Kwong Meng Prepared by: LOH Yao Sheng Michelle TING Mei Chen Remi CHOONG Ciyuan Roger KOH Fong Jit

Q1. Google was a late mover in the internet search industry, entering the market later than firms such as AltaVista and Inktomi. Being a late mover, Google benefitted by learning well from the mistakes of its predecessors. AltaVista and Inktomi were the first movers in internet search, providing directory giant Yahoo! with algorithms which enabled automated search. However, as with all first movers, loopholes and errors are unavoidable. Both companies faced problems of “algorithm abuse” which resulted in spam that frustrated its users. Notably, both companies did not foresee this problem. This may be one disadvantage of first movers - the potential problems are unknown. Furthermore, in an attempt to be the first mover (which has its benefits to be mentioned below), companies may “rush” out their projects and hence overlook important details such as system integrity, potential abuses and user friendliness. Having said that, we cannot undermine the benefits of a first mover advantage. Microsoft with operating systems and Creative with sound cards are two good examples. A first mover establishes standards in accordance with their expertise and new companies looking to enter the market need to compete against their expertise. This poses significant barriers to entry for new firms. Also, by the time a competitor arises, the first mover would have secured a loyal consumer base. This makes it hard for late movers to claw market share away from first movers. Google, conversely, is a company that arises after witnessing the inadequacies of its predecessors. As such, it has the advantage of understanding and preventing the pitfalls its predecessors faced. Also, being a late mover, Google can concentrate on improving currently established systems instead of starting from scratch. In the case of Google, the company improved search by creating an algorithm that prevents abuse. By using algorithms instead of reinventing ways to automate search, Google did not have to start from scratch (which is obviously harder).

It was clear that by solving the problem of spam, Google has set a new standard as Yahoo! soon replaced Inktomi with Google. However, this is only effective if the standards established by the first mover are significantly improved upon. Q2. In order to predict Google’s future market share, we need to address this question from both advertisers and consumers’ point of view. As consumers, we wish to find the required sites as quickly and as hassle free as possible. This means that the company with the fastest and most accurate search results will garner a greater consumer base than its competitors. With regards to Google, its unique PageRank algorithm ensures that users receive the most relevant search results; hence consumers are more skewed towards Google. In addition, Google’s corporate value of “don’t be evil” translates to corporate social responsibility (CSR). Much academic research has shown that CSR leads to increased competitiveness. In the case of Google, it ensured that profits did not manipulate search results and users, who continued to get the relevant search results they desired, stayed loyal to Google for its relevancy. Lastly, Google’s great diversification in other fields encourages users to use Google out of convenience. For example, the Google Toolbar has a search function which, obviously, uses the Google search engine. For the advertisers, Google’s cheaper rates and greater degree of clickthrough meant maximized efficiency and significant cost savings. It is obvious for any smart advertiser to advertise on Google – lower costs yet better results. Furthermore, with a majority of search users preferring Google, smart advertisers, in an attempt to capture a greater marketing mass, would naturally advertise with Google as well.

Hence, coupling huge demand (satisfied users) with huge supply (smart advertisers), Google serves as a middleman who satisfies both sides of the equation. This is in contrast with it competitors, who merely satisfies advertisers. However, this does not mean that Google would certainly monopolize the search market. For one, Google’s decision not to advertise for products like alcohol and tobacco would deprive it of a huge market base despite a positive portrayal of Google’s image to consumers. Hence, Google’s market share would mostly likely fall at 80%, where the other 20% consists of advertisers who are unable to advertise on Google due to its CSR policy. Q3. AOL is a global Internet service provider (ISP) with a customer base of 10.1 million subscribers as of November 2007. It is also a subsidiary of Time Warner – the world’s third largest media and entertainment conglomerate by market capitalization. There are several reasons as to why Google would want to acquire a stake in AOL – one of which is because of the fact that it is an ISP. Google supports virtual applications, many of which relied on AJAX which required fast and reliable Internet connections. These connections allowed a service provider to deliver fresh data and advertising and enable behavioral tracking. Google, by aligning itself with AOL, will be able to ensure that there’s a push for migration of dial-up connections to broadband ones, complimenting the services offered by Google. Also, since AOL is affiliated with Time Warner, it would provide Google with access to yet even more Internet users – people who use the Internet for media entertainment purposes. No doubt the price that Google paid for its stake in AOL is above the recent valuation by JPMorgan but we must understand that a valuation is ultimately only an estimation of the company’s worth. Even if the price Google paid is higher, any amount that was over and above the valuation

is meant to serve as a form of goodwill to Time Warner and AOL. Google probably understands that in order to expand even further it will require assistance from the other companies and thus it was important to lay the foundation proper for such a scenario to arise. However, our group feels that the 45% premium that Google paid to AOL is too much; a price that is 25% above the market valuation would probably be suffice. Q4. Google’s core capability is its ability to develop superior search solutions – a key competence which drives many of its other services like Google Maps and Google Desktop. As of August 2007, Google is the most used search engine on the web with a 53.6% market share; to say that Google is most famous for its ability to organize information, providing its users with fast and accurate results would be nothing short of an understatement. In fact, should Google fail to maintain its pole position in the web search industry, it just wouldn’t be Google anymore. Moreover, Google’s mission statement coupled with its founders who are committed in blazing the trail in the web search industry, it’s needless to say that Google will continue to develop and defend its core business of search and organizing information. This is even more unlikely when one consider that the market is predicted to grow at an average annual rate of nearly 20% for the years 2006 to 2009. Google’s strength lies in its web search capabilities, thus any expansion into other opportunities ought to play to its core capability. Having said that, our group feels that Google should pursue portal and e-commerce opportunities and scale back on its development of its software segment. As shown in the case report, Google accounts for nearly 36% and 68% of the all search queries in US and the world respectively. Given that Google has such a large user base, it only makes sense to transform Google into a web portal so as to broaden the reach of its other services – a portal would allow Google to bundle its myriad of services into a one-stop website. One obvious competitor in the web portal market would be

Yahoo!. Although Google may trump Yahoo! in terms of its web search capabilities, Yahoo! is the veteran company in the web portal industry. With the experience it has accumulated through the years, Yahoo!’s team is very much capable of meeting any challenges whilst this is may not be the case for Google. However, with a much larger user base than Yahoo!, Google should be able to move over to the web portal market easily if its team is capable of mastering the art of web portal hosting. Google’s larger user base will also help compliment its e-commerce arm – Base. As mentioned in the case, many of eBay’s sellers are also searching for a vendor through Google. By setting up a unit that is similar to eBay’s online auction system, Google would have a ready base of buyers and sellers – its web search users. Coupled with its strength in churning out accurate web search results, users will probably find doing e-commerce on Google a much easier and friendlier experience as compared to other online auction sites like eBay. However, Google lacks the experience that eBay’s management possess and this may prove to be a significant obstacle since there are many legal issues pertaining to online auctioning. Moreover, Google’s online payment service, as it is not as established as eBay’s PayPal, may be slow to gain trust with its online users. This too will prove to be a weakness that Google will have to venture into ecommerce. One obvious pursuit which Google not ought to undertake is its venture into the software market. The main competitor would be Microsoft’s Office Suite. As Google does not have prior experience in this area it would be imprudent to go head-to-head with Microsoft. No doubt Google has a big ready-made user base, but the less developed interface of Google Docs – Google’s online office suite – does not match up to Microsoft Office. Also, its strength in web searches will not compliment the online office suite, thus rendering Google without an edge in its fight in the software market.