CASE STUDY: GOOGLE, 2014

A Report of a Senior Study

by

Kelsey Handel

Major: Finance/Accounting

Maryville College

Spring, 2015

Date approved , by

Faculty Supervisor

Date approved , by

Division Chair
 ASTRACT

This manuscript is a 2014 case study on Google Inc. The study reveals the

importance of innovation in an environment of fierce competition. Chapter I consists of a

thorough analysis of the company’s history, the external environment as well as the

internal environment. Chapter II is an Instructors Manual prepared to assist college

professors in discussing and teaching the case in undergraduate strategic management

courses. The manual encompasses a case synopsis followed by five discussion questions

and answers. The first question involves an analysis of the financial performance of the

company. The second question asks for a SWOT analysis. Other theory questions in the

manual include the application of Porter’s Five Forces Theory, Blue Ocean Theory and

an analysis of Google Inc.’s use of People Analytics.

Introducing an entirely new way to search for information online, Google Inc.

shocked the online search engine industry in 1998. Search results were faster and more

accurate than any other site before its time. Google expanded to become a leading

international technology company with a strong hold on the industry.

Yet, Google’s usual policies and business practices baffled investors and fellow

companies alike. The company faced a tough obstacle from falling ad rates, a place where

most of Google’s revenue derived as it offered its online services for free. Competition

intensified forcing Google to realize that something new had to be done. What made

Google so different from its competitors? What strategies or initiatives did Google

employ to hold on to its leadership position in the industry?

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 TABLE OF CONTENTS

CHAPTER I Google inc., 2014 ......................................................................................... 1

History......................................................................................................................... 2
External Environment ................................................................................................. 6
Trends ..................................................................................................................... 7
Surge of video game phenomena ........................................................................ 8
The proliferation of online video ........................................................................ 8
The rise of online shopping ................................................................................ 9
The increase of internet crime ............................................................................ 9
Competition........................................................................................................... 10
Facebook ........................................................................................................... 10
Twitter ............................................................................................................... 11
Internal Environment ................................................................................................ 11
Leadership ............................................................................................................. 11
Larry Page ......................................................................................................... 11
Eric E. Schmidt ................................................................................................. 12
Sergey Brin ....................................................................................................... 13
Corporate Culture.................................................................................................. 14
Organizational Structure ....................................................................................... 16
Operations ............................................................................................................. 17
Endnotes............................................................................................................................ 19
Exhibits ............................................................................................................................. 22
CHAPTER II..................................................................................................................... 27
Synopsis .................................................................................................................... 27
Discussion Questions ................................................................................................ 28
Answers to Discussion Questions ............................................................................. 29
Endnotes .................................................................................................................... 48

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 CHAPTER I

GOOGLE INC., 2014

“Sixteen years after we started Google, we’re just scratching the surface of what’s
possible. Sergey and I come to work each day excited about what lies ahead and the
extraordinary people we work with. Googlers make everything possible, and they are our
future. And, while the world may have changed over the years, we’re as motivated by the
potential to make a difference in people’s lives today as when we first started.”1
Larry Page; Google Inc. CEO

Google focused on innovation. It strived to make itself better, faster, and more

efficient, and it succeeded more often than not. Google formed a thriving company

culture that inspired greatness in the workplace. It broke free from the standard way of

business and focused on important work issues for the company. Was it important for

workers to work all possible work hours in proper suits and ties? Should a company’s

concerns begin with deciding which individual should make the decisions for a group of

employees? Google had a new, inspiring way of work that resulted in consistent amazing

work from its employees, or “Googlers” as Google called them.

Google’s new idea for company culture started with a workplace that employees

never wanted to leave. Although the benefits of working for Google were impressive,

Google understood that it’s the small things like free transportation, good food, strategic

breaks, and strong employee relationships that made a large difference each day. The

facilities, among others, made coming to work fun and enjoyable. This meant that Google

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retained its employees because happy employees didn’t want to leave. The next step in its

plan was to hire high-quality employees based on talent, skill, and diversity who could

combat the technological challenges that Google encountered. These employees were

adept, bright, and intuitive; yet, competition for these talented individuals was intense.

There weren’t many individuals who could do what Google technicians did with the

passion they did it with.

History

Google was founded by Larry Page and Sergey Brin in 1998 (Exhibit 1). Page and

Brin met at Stanford in 1995 when Larry was visiting the campus to help him make a

decision on whether or not he would attend Stanford to study for his PhD. Sergey was

assigned to show Larry around.2 The tour must have gone well because in 1996 Larry and

Sergey were already collaborating on a search engine called BackRub that operated on

Stanford servers for over a year until it took up too much bandwidth. It wasn’t until

September 15, 1997 that Google.com was registered as a domain. The name “Google”

was chosen from a play on the word “googol,” which is a mathematical term for the

number represented by the numeral 1 followed by 100 zeros, and is used to reflect Larry

and Sergey’s mission to organize a seemingly infinite amount of information on the web3.

Before heading to the Burning Man festival, where over 60,000 people make the

journey to the Black Rock Desert for one week out of the year to take part in an

experimental community4, Larry and Sergey incorporated the iconic Man into the logo to

keep people informed where the Google crew would be for a few days. It served as a

comical “out of office” message from the founders to the users. This would become the

first of over 2000 “doodle’s” Google would have on its homepage5. Popularity rose such

2
that an entire team of talented illustrators (“doodlers”) and engineers was dedicated to it.

In the beginning, the doodles mostly celebrated familiar holidays; yet, they came to

represent a wide array of events and anniversaries from John James Audubon’s birthday

to the Ice Cream Sundae6.

On September 4, 1998 Google filed for incorporation in California. It proceeded

to make itself at home with a new workspace in Susan Wojcicki’s (now the CEO of

YouTube) garage space in Menlo Park, California. Due to the high price of hard drives,

its very first server rack was built from LEGOs, plastic sheeting, and some case fans 7.

The largest hard drives available at the time were 4GB. To get 40GB of disk space,

Google needed to have them assembled. The cost of the disks were enough that Google

didn’t have much left to spend on a suitable server case so one was put together. Four

years later, Google would be running its algorithms off a 5,000 computer data farm. In

2014 it was estimated Google ran in excess of 1.5 million computers to power its global

search empire8.

Google opened a bank account in the company’s name and deposited the first

check made out to Google Inc., $100,000 from angel investor Andy Bechtolsheim, which

it had received two weeks before filing for incorporation when Google was just an idea9.

A business angel investor was an individual who had enough business experience

relevant to a company that he or she understood a vision or a product in the early stages

of a company’s development in a way that other investors might not10. Andy

Bechtolsheim was a German immigrant and fellow computer whiz from Stanford who co-

founded SUN Workstation, which became the foundation of Sun Microsystems in the

early 1980’s11. His net worth was $4.5 billion and growing, thanks to Google success

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among other items. $100,000 invested in Google in 1998 was worth more than $2 billion

in 2014. With this type of angel funding, Google was able to hire its first employee, a

fellow CS grad from Stanford named Craig Silverstein. He worked for Google for more

than 13 years before leaving with mixed feelings to join education startup Khan

Academy12. In his goodbye email to staff he stated:

“Some of you thought this day would never come (as one person once put it:
“Will you die at Google?”), and it was an extremely difficult choice. I am as
passionate about Google’s mission now as I’ve ever been, and as proud of the
work we’re doing to achieve it. While a lot has changed at Google over the
years, I think we’ve done a remarkable job of staying true to our core mission
of making the world a better place by making information more accessible
and useful. I am looking forward to pursuing that same mission, though in a
slightly different way, at Khan.”13

Even before Google moved out of its garage office, “PC Magazine” reported that

Google had “an uncanny knack for returning extremely relevant results” and recognized

it as the search engine of choice in the Top 100 Web Sites for 199814. While still basking

in the glow from its first big article, it moved from the start-up garage office into new

accommodations at 165 University Avenue in Palo Alto with a total of eight employees

in February, 1999. The staff had grown to eleven employees by the time of the first press

release in June. Just six months after the last move, Google relocated to its first Mountain

View location at 2400 Bayshore.

With the coming of a new century, Google stepped up its game with the

announcement of MentalPlex: Google’s ability to read your mind as you visualize the

search results you want while staring at an animated gif15. Of course something like that

wasn’t possible, but it began Google’s tradition of April Fools’ Day hoaxes. MentalPlex

displayed several humorous error messages on the search results page such as, “Error 01:

Brainwaves received in analog. Please re-think in digital,” and “Error: Insufficient

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conviction. Please clap hands 3 times, while chanting "I believe" and try again.”16 On

April 1, 2004 Google announced its product called “Gmail” (Exhibit 2) which was a

webmail service with a gigabyte of free storage. Hotmail offered only 1/500th as much

storage, and Yahoo Mail offered only 1/250th 17. An entire gigabyte seemed too good to

be true. People thought the company was kidding because of the date and the jokey feel

to the announcement. Though improbable and misleadingly announced, Gmail was real.

In May of 2000 Google took a huge step forward and won its first Webby Award

and released its first 10 language versions of Google.com in French, German, Italian,

Swedish, Finnish, Spanish, Portuguese, Dutch, Norwegian and Danish18. Google.com

became available in over 150 languages soon after. October marked the beginning of

Google AdWords, a new advertisement method that advertised local or global businesses

based on the words people typed into the search engine. This provided a more useful

advertisement method for Google users. Two months later it released the Google Toolbar,

a browser plug-in that made it possible to search without visiting the Google homepage.

Eric Schmidt was named Google’s chairman of the board of directors in March 2001 and

was promoted to CEO five months later.

2001-2004 were years of acquisition, expansion, and innovation for Google. It

introduced services and invented new search and advertisement methods, among other

breakthroughs. In August 2004, it became a publicly-held company with an IPO of

19,605,052 shares of Class A common stock for $85 per share19. Although its Final

Prospectus stated that it had “no specific plans for the use of the net proceeds,”20 it most

definitely did. Programs such as Google images and Google Maps were released, and that

was just the beginning. Apps and programs such as Google Finance and Google Scholar

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were born during this time, along with the Google ideal of a greener, more

environmentally-friendly company. In November of 2007, it introduced Android, its first

open platform for mobile devices. Then, there was an explosive amount of updates and

advancements such as the Google Chrome web browser, Google apps for iPhones and

other mobile devices, Google maps and navigation, and Google Crisis Response. It also

made advancements in self-driving cars and announced an agreement to purchase the

clean energy from 114 megawatts of wind generation in Iowa as part of its long-term goal

to power its operations with 100% renewable energy21.

In April 2011, Larry Page took over the title of CEO, and Eric Schmidt became

executive chairman, but the innovation movement did not slow. Updates and new

technologies continued to be made at an advanced rate, including a project in 2013 using

balloon-powered internet access to hopefully become an option to connect to rural,

remote and underserved areas, and for crisis response communications22. Google was not

a one-trick pony company. It had ideas and projects working in many different markets,

and showed no signs of slowing down in 2014.

External Environment

The internet grew phenomenally fast since its launch. It permeated nearly every

aspect of life, providing fast, relatively inexpensive, and nearly unbounded access to

enormous amounts of information and entertainment, as well as a plethora of practical

and increasingly important applications.23 The number of web servers exploded from

slightly over 10,000 in December 1994 to around 550 million in December 2011.24 This

could partially be attributed to the affordability of computers. If component prices were

low, PC manufacturers could sell products for less, making them easier for consumers of

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all socioeconomic classes to obtain. Individuals bought PC’s especially for the internet

connection they provided. 71% of US households had broadband access as of the end of

2012, and penetration was expected to increase to 77% of households by 2017.25 The

internet was becoming a necessity to get through the day. This spurred the invention of

wireless fidelity (or Wi-Fi), which enabled users of laptop computers and other mobile

devices to access the internet from a variety of public locations such as cafes, hotels, and

airports.26 Technology of this sort continued to grow from the occasional “hot spot” to

potential “super Wi-Fi” that covered entire cities with only a handful of hotspots needed.

Then, enhancements such as 4G or LTE (long-term evolution) for mobile devices like

cell phones and tablets were launched.

Trends

There were five specific trends that changed the face of the internet. With this

technology people were able to do amazing things such as chat with people across the

world, go shopping without leaving home, or run a business from our bedroom. One of

the main online movements was the market of online music. Of all the companies

involved in online music, Apple Inc.’s iTunes was the obvious leader of the pack;

although, it faced its share of doubts. Industry innovation would always be questioned

because it was not fully understood. New technology always had speculations to work

through. Apple, for instance, faced backlash from record companies that believed selling

single songs was restraining music sales27. In 2008, iTunes became the largest music

retailer on units sold, even surpassing Wal-Mart Stores Inc.28 Amazon then became a

strong competitor for music downloads, causing Apple’s sales to decline as Amazon’s

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sales grew. With the explosion of mobile devices, Pandora Media Inc. took a stand and

made it’s footprint on the market.

Surge of video game phenomena

1.4 billion Online users played Internet video games around the world as of 2012,

and it was projected that this number would roughly double to 2.4 billion by 2017.29 As

technology and expertise increased, bigger and better games could be made. Online

access for games was considered a necessity for current consoles such as Microsoft’s

Xbox 360, Nintendo Co. Ltd.’s Wii, and Sony’s PlayStation 3 (PS3). Social networking

brought about a new kind of gaming called “social gaming,” where people can play

internet games on social media sites like Facebook. Zynga Inc., the largest and most

prominent company in the social gaming segment, went public in December 2011 and

went through tough times. Interestingly, Google invested between $100 and $200 million

in Zynga, among others, in mid-2010 as part of its preparation to increasingly focus on

social media.30

The proliferation of online video

Another aspect of online interaction that blossomed from internet use was online

video. Videos had been a notable part of the mainstream Internet for well over a decade,

becoming more available based in part on innovations in related technologies and

improvements in computing power and broadband access speeds.31 To follow this trend,

Yahoo bought Broadcast.com, and Google bought YouTube. In 2005 (when YouTube

was created), 63 billion videos were viewed online, according to comScore. Over six

billion hours of video were watched each month via YouTube, which equated to nearly

an hour for every person on the planet.32 From the start of internet video, advertisement

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using these capabilities grew faster than most all other advertising categories. Companies

such as Netflix, Hulu, and Vine along with YouTube, made their business entirely off of

the online video capability and became multi-million dollar companies.

The rise of online shopping

An especially large market that emerged was the online shopping market. This

capability added a new layer to competition where companies had to compete for not

only the best price, but on selection, service, and shipping. Meeting these new

requirements wasn’t easy, companies had to invest time and money into establishing an

internet-enabled product with customer service. Many real world retailers lost market

share to internet-based competitors because of accessibility, but other companies grew

significantly because of internet sales. Other companies embraced the internet for other

kinds of business uses such as video conferencing, corporate intranets, blogs, and apps.

Thing like this improved communications among employees, customers, and partners

which reduced associated costs.33

The increase of internet crime

Although other trends led to improvements in lifestyle and economy, the last

trend involved the increase in information abuse. Some examples of the bad side of the

internet were junk e-mail (commonly known as spam), computer viruses, and identity

theft.34 This brought about the creation of software security to protect against malicious

attacks, Internet-connected devices and equipment, identity theft, and ransomware.35

Attacks like this were not only directed at large companies and businesses, but small

businesses and individuals, as well. This spurred an unfortunate trend of cyber-attacks

that were used for things as small as spam in your inbox and for things as large as

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terrorism as a top security threat. The battle against spam eating up bandwidth and

infecting computers with viruses continued, though many small battles against them

forced criminals to work outside of the US. As a result of more sophisticated, widely-

deployed, and aggressively-managed anti-spam technologies, spam volumes fell in 2010,

2011, and in 2012.36 As a result, miscreants moved on to more vulnerable technologies

and targets.37

Competition

In its Industry of Computer Services and the Internet, Google had impressive

competition. Two of its main competitors were Facebook Inc. and Twitter Inc, large

companies that provided personalized internet services to consumers around the world.

Facebook

Facebook Inc. (FB) was the world’s largest social media company and property.38

In 2014 its chairman and CEO was Mark Zuckerberg and it had 6337 employees. This

company’s website was used for social media along with different additions for

advertisements, games, entrepreneurship and other job opportunities. The Facebook

Platform was employed by developers to build apps and integrated websites that were

personalized and social, and by advertisers interested in reaching users, in part based on

shared information related to age, location, gender, interests, etc.39 People used Facebook

to connect to family and friends that were far away by sharing pictures, videos, and

messages in a way that would have been difficult or time consuming without it. Despite

stiff competition, Facebook dramatically increased its lead and strongly solidified its

place as the leading social network in terms of users.40

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 Twitter

Twitter Inc. (TWTR) was a "global platform for public self-expression and

conversation in real-time." The company believed it had developed a fundamentally new

way for people to discover, find, create and distribute content, with an emphasis on

simplicity.41 In 2014 its CEO was Richard Costolo and it had 2712 employees. The

largely public nature of the platform allows Twitter content to be easily found, consumed

and distributed, increasing its related reach and impact.42 Twitter fulfilled the social

media side of the market and provided a real-time update of what was happening to those

around you, locally and across the world. People would get on Twitter, not just to see

what their friends were doing that day, but they could follow important figures that may

affect their lives such as the president of the United States or their favorite news station.

Although it was thought that Twitter was doing well, much would have had to go right

for it to truly fulfill its potential, particularly in a world where technologies and tastes

were constantly changing.43

Internal Environment

Leadership

Larry Page

Google Co-Founder Larry Page was raised in an environment that promoted his

early love for computers, invention, technology, and business. His mother was a

computer programming professor at Michigan State University, and his father was a

computer science and artificial intelligence professor at Michigan State.44 Larry grew up

around computers, science magazines, and a family with computer knowledge. Even his

older brother was part of his learning environment by teaching Page how to take things

11
apart and put them back together. Page started out as the CEO and grew the company

from 2 to more than 200 employees45, but ended up hiring Eric Schmidt to take over

because of his experience. Page was appointed to president of products. Schmidt made a

huge impact as CEO; under his leadership, Google dramatically scaled its infrastructure

and diversified its product offerings while maintaining a strong culture of innovation.46

After a decade of amazing work from Schmidt, Larry Page became CEO once again. In

those ten years, Page observed Schmidt and learned what it took to run a company. In his

work with Google, Page was honored with the Marconi Prize in 2004 along with co-

founder Sergey Brin. He was a trustee on the board of the X PRIZE, and was elected to

the National Academy of Engineering in 2004. Schmidt was close with Page, offering

him advice if needed, although Schmidt stated that he was confident in Page’s ability to

run the company and believed he was ready to take control.

Eric E. Schmidt

Schmidt had an electrical engineering degree from Princeton, a PhD in computer

science from UC Berkeley, years of software work at Bell labs and Xerox PARC, a chief

technology officer position at Sun Microsystems, and a CEO position at Novell under his

belt before joining the Google family in 2001.47 For ten years, from 2001 to 2011,

Schmidt served as Google’s CEO and oversaw the company’s technical and business

strategy along with Larry Page and Sergey Brin.48 Schmidt had what the founders did not,

which was experience in business, leadership, management, and strategic planning that he

had gained in his work with Novell and Sun Microsystems, Inc.49 He used this knowledge

to lead Google Inc. into the global community. Schmidt was a member of the President’s

Council of Advisors on Science and Technology and the Prime Minister’s Advisory

12
Council in the U.K.50 He was elected to the National Academy of Engineering in 2006

and inducted into the American Academy of Arts and Sciences as a fellow in 2007.51 He

chaired the board of the New America Foundation, and since 2008 had been a trustee of

the Institute for Advanced Study in Princeton, New Jersey.52 In May 2012, Schmidt

became a member of Khan Academy’s board of directors, and joined the board of The

Economist in 2013.

Sergey Brin

Sergey Brin was born in Moscow, Russia and immigrated to the United States

with his family when he was six to escape anti-Semitism Russia.53 When asked about it,

Brin explained that although he was teased in school, he was thankful for the life he was

given, knowing that it was better than the hardships his parents had suffered through in

Russia. Brin, along with Page, had strong influence from his parents. His father was a

professor of mathematics at the University of Maryland, and his mother was a scientist

who worked for NASA on projects related to climate and weather forecasting.54 Brin was

also exposed to computers at a young age, and his curiosity for science and technology

grew rapidly. After high school, Brin attended the University of Maryland, graduating in

three years with highest honors in mathematics and computer science.55 While Page

became more interested in the business side of Google, Brin focused on his personal

passions in new product production and technology strategies, his greatest strengths,

according to Schmidt.56 When asked what he would like to be remembered for, Brin

answered that he’d like to be remembered for making the world a better place.57 He

wanted to improve the technologies and business side of Google, but philanthropy was

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important to him, as well, which was evident in the research of “green” technology he

hoped to develop in the future.

Corporate Culture

“We don’t just want you to have a great job. We want you to have a great life.
We provide you with everything you need to be productive and happy on and
off the clock.”

Larry Page, Google cofounder

Google provided a successful model for building and maintaining employee

satisfaction, which promoted customer satisfaction.58 Google had an extreme amount of

respect for its employees and was dedicated to provide them with a creative and

comfortable environment in which to work and pursue their personal ideas for the

company. Google regarded feeding employees seriously. Employees could get gourmet

meals cooked for free at work, which not only cut out the time spent leaving the building

to buy food, but also allowed employees to build community as they shared ideas at meal

times.59 Google believed that “good food powers good thinking and good work.”60

Charlie Ayers, or Chef Charlie, made a big impact on the food culture at Google and

helped create a menu that employees could get excited about.

Before it became a public company, Google made it clear that it wasn’t like other

companies, and it didn’t intend to change after its IPO. In a letter to potential investors,

Google stated that it was not a conventional company and did not intend to become one.61

It emphasized an atmosphere of creativity and challenge, which helped it provide

unbiased, accurate, and free access to information for those who rely on it around the

world.62

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 Google constantly improved its search services, and worked every day to make

them better, faster, and more accurate. This was possible in part because of Google’s “70-

20-10 percent rule.” Google asked that 70 percent of an employee’s time go into doing

their daily work, 20 percent of their time working on what they think would benefit

Google, and 10 percent of their time on any personal interests they might have.63 There

were reviews and performance evaluations twice a year of the ideas employees came up

with, which allowed employees the chance to be promoted if they had something

especially innovative. Many of Google’s significant advances happened in this manner.64

AdSense and Google News were both innovations thought up in the 20 percent of time.65

Of course innovation was something to strive for, but at Google, they didn’t expect every

idea to work. Employees might try an idea and come up with nothing, but they were

encouraged to move on, learn from it, and try again. Among the perks of being a Google

employee were all the amazing things you can take advantage of at the office. This

included snack rooms, nap rooms (Exhibit 3) , game rooms, gyms, lap pools, no dress

code, organized roller blade hockey games, on site massages, on-site doctors, off-site

trips, parties, etc.66 Google truly believed that happy workers were good workers and

wanted employees to love being a part of the company they worked for.

Impressive benefits were another item Google employees enjoyed. They included

medical, dental, and vision insurance along with life, accidental death, and long- and

short-term disability insurance.67 Google offered a flex spending account plan for health

needs, dependent care, and transportation. If needed, employees could go through the

company to find legal consultations, financial planning, and short term counseling.68

401(k) plans, college savings plans, generous holiday and sick time, maternity and

15
parental leave, financial assistance for adoption and the purchase of energy-efficient cars,

and a gift-matching program for contributions to charitable organizations were offered to

each Google employee. The company wanted to take away anything that might get in the

way of an employee’s happiness and ability to thrive by providing everything for free on-

site. This not only attracted talented new employees, but this made it much easier for

current employees to stay as Google had a mere 5% turnover rate in 2006.

The caliber of employees was a main focus of the company. Not just anyone

could work for Google; those benefits had to be earned. They put applicants through a

pre-employment testing process which indicated the likelihood of compatibility with the

corporation, and expected them to solve puzzles on billboards in order to apply69. This

may seem like it would push away applicants more than it would draw them, but that was

the point. The challenges placed were there to draw in the kind of employee that would

relish the challenge, and would find solving the riddle a fun experience. Solving the

riddle and passing the test were only the beginning of the employment journey with

Google. Potential employees might participate in as many as six interviews to ensure they

were a good fit70. Google wanted highly skilled workers with a love of solving problems,

whether a simple riddle or multilevel online services to meet new needs.

Organizational Structure

Google was run by self-management and management by peers.71 There weren’t

many tiers to the management tree which allowed for fast production of a program so it

could be quickly tested and improved. Google did its best work on numerous initiatives

in teams of three to five people72. The flat organization allowed for hundreds of projects

to be in progress simultaneously without the need to get it approved by so many people.

16
If all the team members on the project approved of the direction they were headed, it was

tested in real-time by Google users, where they acquired data which was analyzed to

decide whether or not the team should scrap the project and start again, or improve what

they had made using the new information.

When asked about management Eric Schmidt answered, "This model works when

you have the right people. It would be a complete failure in an organization of people

who wanted to be told what to do and had one big project. We try to have as little middle

management as possible. They get in the way."73 The Google world was a fast-paced

improvement machine. It did great work in groups in small amounts of time, which made

it an exciting place to learn, work with talented people, and create new concepts.

Operations

Google’s financial statements showed consistent growth from 2009 to 2013. In 4

years Google almost tripled its revenue from $23,651 million in 2009 to $65,142 million

in 2013, and nearly doubled its income from operations from $8,312 million to $15,126

million (Exhibit 4). This was impressive growth for a company that dealt almost totally

with software and online services. Google must profit from exceptional service and user

customization.

With growth in revenue came expected growth in company expenses, showing

that Google was still expanding. This was evident in the growth of the property, plant and

equipment assets on the balance sheet. This account increased as Google continued to

build and furnish new facilities (Exhibit 5).

Google didn’t plan to give out quarterly earnings estimates like other companies.

Founders, Page and Brin, stated they would not smooth results: “If earnings figures were

17
lumpy when they reached headquarters, they will be lumpy when they reach you.”74

Google said this not with the intent to confuse investors, but instead hoped to promote

consideration for long-term goals instead of short-term goals. Google worked differently

with its employees. It promoted innovative ideas that often failed, but could change the

face of technology when they were successful. This was why it advised people to look at

the long-term progress. The failures look bad on a quarterly statement, but make all the

difference for annual company progress. Failures were a part of the innovation process.

Google stock price showed valleys in the short term, but the overall trend was

upward (Exhibit 6). This had been true for Google since its IPO in 2004. Its unorthodox

methods frustrated people who didn’t understand and made Google’s public debut a bit

rough. The end result was the acquisition of a large amount of capital for the company

and a larger stock price that continued to grow over the years.75 There were always

people who didn’t understand Google practices or didn’t agree with the business

methods, but Google found a way to succeed through the road less traveled.

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 ENDNOTES

1
Page, Larry. "2013 Founders' Letter." Google – Investor Relations. Google Inc., 2013. Web. Sept. 2014.
<http://investor.google.com/corporate/2013/founders-letter.html>.
2
"Management Team." Google – Company. Google Inc., n.d. Web. Sept. 2014.
<https://www.google.com/about/company/facts/management/>.
3
"Our History in Depth." Google – Company. Google Inc., n.d. Web. Sept. 2014.
<http://www.google.com/about/company/history/#top>.
4
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"About Doodles." Google Doodles. Google Inc., n.d. Web. Sept. 2014.
<http://www.google.com/doodles/about>.
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"2013 Founders' Letter."
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Vise, David A., and Mark Malseed. The Google Story. New York: Delacorte, 2005. Print.
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"Geek Trivia: The First Google Server Was Built From What?" HowTo Geek RSS. How-To Geek, LLC,
n.d. Web. Sept. 2014. <http://www.howtogeek.com/trivia/the-first-google-server-was-built-from-
what/>.
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Scott, Damien, and Alex Bracetti. "50 Things You Didn't Know About Google."Complex. Complex
Media Inc., 22 Feb. 2013. Web. Sept. 2014. <http://www.complex.com/pop-culture/2013/02/50-
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Scott, Virginia A. Google. Westport, Conn: Greenwood Press, 2008. eBook Collection (EBSCOhost).
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web.a.ebscohost.com.library.acaweb.org/ehost/ebookviewer/ebook/bmxlYmtfXzI4MDgwMl9fQU
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60ae944335e1@sessionmgr4005&vid=0&format=EB&rid=1>.
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"Andreas Von Bechtolsheim." Forbes. Forbes Magazine, n.d. Web. Sept. 2014.
<http://www.forbes.com/profile/andreas-von-bechtolsheim/>.
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"Management Team."
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Swisher, Kara. "End of an Era: Google’s Very First Employee, Craig Silverstein — Technically, No. 3
— Leaving." AllThingsD. Dow Jones and Company Inc., 09 Feb. 2012. Web. Sept. 2014.
<http://allthingsd.com/20120209/googles-very-first-employee-craig-silverstein-technically-no-3-
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"Our History in Depth."
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"Google’s April Fools' Day Hoaxes – 2000 to 2010." Epiphany Search Blog. Epiphany, 31 Mar. 2011.
Web. Sept. 2014. <http://www.epiphanysearch.co.uk/blog/2011/03/googles-april-fools-day-
hoaxes-%E2%80%93-2000-to-2010/>.
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"Google’s April Fools' Day Hoaxes – 2000 to 2010."
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McCracken, Harry. "Google’s Greatest April Fools’ Hoax Ever (Hint: It Wasn’t a Hoax)." Time. Time, 1
Apr. 2013. Web. Sept. 2014. <http://techland.time.com/2013/04/01/google-april-fools/>.
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"Our History in Depth."
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"Our History in Depth."
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"Google Inc. Final Prospectus." Sec.gov. U.S. Securities and Exchange Commission, 18 Aug. 2004. Web.
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<http://www.sec.gov/Archives/edgar/data/1288776/000119312504143377/d424b4.htm>.
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"Our History in Depth."
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"Our History in Depth."
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Kessler, Scott. "Computers: Consumer Services & the Internet: Current Environment." S&P Capital IQ
Industry Surveys. Standard & Poor’s Financial Services LLC, May 2014. Web. Oct. 2014.
<http://0-
www.netadvantage.standardandpoors.com.library.acaweb.org/docs/indsur///csi_0514/csi_0514.ht
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Kessler, Scott. "Computers: Consumer Services & the Internet: Industry Profile - Industry Trends." S&P
Capital IQ Industry Surveys. Standard & Poor’s Financial Services LLC, May 2014. Web. Oct.

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 2014. <http://0-
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m#trends>.
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"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
26
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
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"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
28
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
29
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
30
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
31
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
32
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
33
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
34
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
35
"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
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"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
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"Computers: Consumer Services & the Internet: Industry Profile - Industry Trends."
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"S&P Capital IQ Company Profile: Facebook Inc." S&P Capital IQ Industry Surveys. Standard & Poor’s
Financial Services LLC, n.d. Web. Oct. 2014.
<http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/cp/companyOverView.
do?SPPW_ID=300930&pc=NET&auth=1920241771600331171331802080321452530960032460
93&tracking=NET>.
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"S&P Capital IQ Company Profile: Facebook Inc."
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"Computers: Consumer Services & the Internet: Current Environment."
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"S&P Capital IQ Company Profile: Twitter Inc." S&P Capital IQ Industry Surveys. Standard & Poor’s
Financial Services LLC, n.d. Web. Oct. 2014.
<http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/simpleSearchRun.do?
ControlName=CompaniesSimpleSearch >.
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"S&P Capital IQ Company Profile: Twitter Inc."
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"Computers: Consumer Services & the Internet: Current Environment."
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Scott, Virginia
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"Eric Schmidt." Forbes. Forbes Magazine, n.d. Web. Oct. 2014. <http://www.forbes.com/profile/eric-
schmidt/>.
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"Management Team."
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"Management Team."
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Scott, Virginia
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Shipman, Debra.
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Shipman, Debra.
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4515-8961-
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75
Basch, Reva.

21
 EXHIBITS

Exhibit 1: Google’s Founders Larry Page (left) and Sergey Brin (right)

Source: http://www.incomediary.com/google-follows-these-8-simple-rules-and-so-

should-you

22
Exhibit 2: Gmail Logo

Source: http://www.maximumpc.com/best_email_service_2013

Exhibit 3: Water Lounge in Zürich Switzerland Google Facility

Source: http://www.hometrendesign.com/cool-google-emea-engineering-hub-office-in-

zurich-switzerland-architects-by-camezind-evolution
23
Exhibit 4: Comparative Income Statements

GOOGLE INC CLASS C (GOOG) CashFlowFlag INCOME STATEMENT

Fiscal year ends in December. USD in millions except per share data. 2009-12 2010-12 2011-12 2012-12 2013-12 TTM
Revenue 23651 29321 37905 50175 59825 65142
Cost of revenue 8844 10417 13188 20634 25858 27602
Gross profit 14806 18904 24717 29541 33967 37540
Operating expenses
Research and development 2843 3762 5162 6793 7952 8933
Sales, General and administrative 3651 4761 7313 9988 12049 13481
Other operating expenses 500
Total operating expenses 6494 8523 12975 16781 20001 22414
Operating income 8312 10381 11742 12760 13966 15126
Interest Expense 58 84 83 94
Other income (expense) 69 415 642 710 613 756
Income before taxes 8381 10796 12326 13386 14496 15788
Provision for income taxes 1861 2291 2589 2598 2282 2736
Net income from continuing operations 6520 8505 9737 10788 12214 13052
Net income from discontinuing ops -51 706 168
Net income 6520 8505 9737 10737 12920 13220
Net income available to common shareholders 6520 8505 9737 10737 12920 13220
Earnings per share
Basic 10.32 13.36 15.1 16.42 19.43 19.72
Diluted 10.21 13.17 14.89 16.17 19.08 19.37
Weighted average shares outstanding
Basic 632 637 645 645 665 671
Diluted 788 646 654 645 677 682
EBITDA 9836 11777 14235 16432 18518 20057

Source: Morningstar

24
Exhibit 5: Comparative Balance Sheets

GOOGLE INC CLASS C (GOOG) CashFlowFlag BALANCE SHEET

Fiscal year ends in December. USD in millions except per share data. 2009-12 2010-12 2011-12 2012-12 2013-12
Assets
Current assets
Cash
Cash and cash equivalents 10198 13630 9983 14778 18898
Short-term investments 14287 21345 34643 33310 39819
Total cash 24485 34975 44626 48088 58717
Receivables 3178 4252 5427 7885 8882
Inventories 505 426
Deferred income taxes 644 259 215 1144 1526
Prepaid expenses 836 1326 1745 2132 2827
Other current assets 23 750 745 700 508
Total current assets 29167 41562 52758 60454 72886
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 8130 11771 14400 17697 23837
Accumulated Depreciation -3286 -4012 -4797 -5843 -7313
Net property, plant and equipment 4845 7759 9603 11854 16524
Equity and other investments 129 523 790 1469 1976
Goodwill 4903 6256 7346 10537 11492
Intangible assets 775 1044 1578 7473 6066
Deferred income taxes 263 265
Other long-term assets 416 442 499 2011 1976
Total non-current assets 11330 16289 19816 33344 38034
Total assets 40497 57851 72574 93798 110920
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 3465 1218 2549 3009
Accounts payable 216 483 588 2012 2453
Taxes payable 37 197 240 24
Accrued liabilities 2247 3256 4356 6968 7986
Deferred revenues 285 394 547 895 1062
Other current liabilities 2361 2007 1673 1374
Total current liabilities 2747 9996 8913 14337 15908
Non-current liabilities
Long-term debt 2986 2988 2236
Deferred taxes liabilities 287 1872 1947
Deferred revenues 42 35 44 100 139
Other long-term liabilities 1703 1579 2199 2786 3381
Total non-current liabilities 1745 1614 5516 7746 7703
Total liabilities 4493 11610 14429 22083 23611
Stockholders' equity
Common stock 0 18235 20264 22835 25922
Additional paid-in capital 15817
Retained earnings 20082 27868 37605 48342 61262
Accumulated other comprehensive income 105 138 276 538 125
Total stockholders' equity 36004 46241 58145 71715 87309
Total liabilities and stockholders' equity 40497 57851 72574 93798 110920

Source: Morningstar

25
Exhibit 6: Stock price graph

Source: http://www.nasdaq.com/symbol/goog/stock-

chart?intraday=off&timeframe=5y&splits=off&earnings=off&movingaverage=None&lo

werstudy=volume&comparison=off&index=&drilldown=off

26
 CHAPTER II

GOOGLE INSTRUCTOR’S MANUAL

Synopsis

Google began operations in 1998 in Menlo Park, California. Its founders, Larry

Page and Sergey Brin, led Google from a small business with homemade equipment and

very little funding to an award winning, global company with industry shake-up products.

Before Google was created, Page and Brin successfully pitched ideas to angel investor

Andy Bechtolsheim, and they gained a significant kick-start for their Google bank

account, allowing them the boost they needed to create an industry leading company.

Google’s mold-breaking internet search engine provided extremely relevant results to its

users and became the search engine of choice.

Google earned the success it had, but that was just the first step in a long life of

innovation. Google released popular programs such as AdSense, Gmail, Google Images,

and Google Maps, among others, that people used every day. It created an entirely new

web browser called Google Chrome and began releasing products like Android phones

and Google Apps for mobile devices. The company would soon branch off into other

industries such as automotive. It advanced into self-driving cars and clean energy, hoping

to one day power its operations with 100% renewable energy.

27
 Page and Brin didn’t want Google to be like every other company. They wanted it

to be different and unique, especially when it came to employees. They created a

community atmosphere for Google employees that allowed Googlers to enjoy coming to

work and to create new programs with a skilled team. Google had an inviting work

environment which encouraged creativity and community for employees. This provided

Google with an extremely low turnover rate.

Though Google has been on the fast track for 16 years, the company faced its

share of hardships. It struggled to attain skilled employees in a highly-competitive

market; yet, Google avoided bad press. It innovated and improved their products to keep

up with demand and industry competition, and discovered new ways to gain a profit

when the main operation, Google search engine, was a free service. How would Google

stay ahead when the industry contained strong, profitable competitors?

Discussion Questions

1. Provide a financial analysis on Google comparing the company ratios to recent prior

year ratios, major competitor ratios and industry average ratios.

2. Identify and describe the strengths, weaknesses, opportunities and threats of Google.

3. Conduct a Porter’s Five Forces Analysis of Google.

4. Identify how Google employs Blue Ocean strategy. Describe specific characteristics

of the strategy. Provide examples of implementation.

5. Identify how Google employs the People Analytics strategy. Describe specific

characteristics of the strategy. Provide examples of implementation.

28
 Answers to Discussion Questions

1. Provide a financial analysis on Google comparing the company ratios to recent

prior year ratios, major competitor ratios and industry average ratios.

Students will use the financial information of Google, Facebook, and Twitter as well as

industry ratios to prepare the financial analysis. They will gain an understanding of ratios

used to determine liquidity, efficiency, profitability, and leverage of a company. Google

ratios are compared over a 5 year period and with industry averages and competitor

ratios. The historic stock price is examined to determine market response to company

performance.

Liquidity refers to a company’s ability to quickly generate cash from current assets to

support its operations and pay off its short-term debt obligations. The greater the

coverage of liquid assets to short-term liabilities the better, as it is a clear signal that a

company can pay its debts that are coming due in the near future and still fund its

ongoing operations76. The table below provides Google’s liquidity ratios, as well as

industry and competitor ratios.

The first ratio is the current ratio (current assets/ current liabilities). Google’s 2014

financial statements show a current ratio of 4.8, which meant Google had $4.80 in current

assets for every dollar of current liability. Considering anything above $1.00 is a good

number, Google was doing well. Besides the surplus in 2011, overall liquidity steadily

increased over the past five years. Compared to competitors, Google had catching up to

do, it was not as liquid as the other two companies, but it was above the industry average.

29
The second ratio is the quick ratio, which is a liquidity indicator that further refines the

current ratio by measuring the amount of the most liquid current assets there are to cover

current liabilities77. The quick ratio excludes current assets that are more difficult to turn

into cash, such as inventory. The beginning of the trend showed some inconsistency in

the direction of the quick ratio with large jumps and drops in quick liquidity. But as the

years went on the trend showed that Google was stabilizing, not allowing for such large

movements all at once. Similar to the previous ratio, Google was still below its

competitors, but the ratio itself was strong, above the industry average, and was showing

signs of upward movement. Investors could feel confident investing in a company with a

solid ratio like this.

Ratio 2010 2011 2012 2013 2014 5 Year Industry FB TWTR

Average Average 2014 2013

Current 4.16 5.92 4.22 4.58 4.80 4.74 2.4 9.60 11.42

Quick 4.00 5.70 3.95 4.28 4.52 4.49 2.2 9.04 11.01

Asset Management is the process of ensuring that a company's tangible and intangible

assets are maintained, accounted for, and put to the best use. The first ratio is Total Asset

Turnover (TAT). This ratio compares the amount of sales or revenues generated per

dollar of assets. It is an indicator of the efficiency with which a company is deploying its

assets78. In Google’s case, this means that in 2014 it generated $0.55 in sales for every

$1.00 of assets. Google was consistently ahead of both its competitors and the industry

average during all five years.

30
The second ratio is Days Sales Outstanding (DSO). This is a measure of the average

number of days that a company takes to collect revenue after a sale has been made. The

lower the DSO, the better a company is at quickly collecting its accounts receivable. The

table below shows that Google’s overall DSO is larger than Facebook’s, and smaller than

Twitter’s.

Ratio 2010 2011 2012 2013 2014 5 Year Industry FB TWTR

Average Average 2014 2013

TAT 0.60 0.58 0.60 0.58 0.55 0.58 0.07 .43 .32

DSO 46.25 46.60 48.42 51.15 50.50 48.58 - 40.80 98.67

Profitability ratios usually get the most attention from investors because they show how

well a business can generate earnings as compared to its expenses and other relevant

costs incurred during a specific period of time79. They demonstrate the survivability of

the company as well as the benefit received by shareholders. The larger the number, the

more successful a company.

The first ratio is Return on Assets (ROA). This illustrates how well a company’s

management is employing its total assets to make a profit. The table below shows that

Google, at 11.93%, was slightly more efficient in utilizing its asset base than Facebook,

at 10.07%, and was significantly more successful than Twitter, who had a -30.75% return

on assets. Overall, though, Google’s return on assets was below the industry average and

showed a decline.

31
 The second ration is the Return on Equity (ROE). This ratio compares a company’s net

income to its average shareholder’s equity. Basically, it measures how much the

shareholders earned for their investment in the company. Google’s numbers were

significantly higher than Facebook’s and Twitter’s, but the return on equity trend over

five years showed a decline, though it was barely below industry average.

The final profitability ratio is the profit margin. This ratio shows the amount of profit

generated by a company as a percent of sales. It is used to detect consistency or

positive/negative trends in a company’s earnings. Over the years 2012-2014, Google

profit margin was above the industry ratio and just below Facebook’s, but was showing

signs of slowly increasing at the end of the trend. Google and Facebook had significantly

stronger ratios than Twitter.

Ratio 2010 2011 2012 2013 2014 5 Year Industry FB TWTR

Average Average 2014 2013

Return on 17.30% 14.93% 12.91% 12.62% 11.93% 13.94% 17.5% 10.07% -30.75%

Assets

Return on 20.68% 18.66% 16.54% 16.25% 15.06% 17.44% 16.0% 11.34% -47.77%

Equity

Profit 29.01% 25.69% 21.40% 21.60% 21.88% 23.92% 17.8% 23.46% -97.06%

Margin

Debt and Capital Structure (Debt management) ratios are used to assess the amount of

debt a company has in relation to assets or stockholders equity. The first ratio is called

Debt to Assets, which can be calculated by adding the long and short term debt, then

32
dividing by the total assets. The higher the ratio, the higher the risk of the company.

Knowing that, Google, in comparison, has a bit more to worry about than its competitors.

Both Facebook and Twitter had smaller debt to asset ratios than Google, but Google was

still below the industry average in debt to assets.

The second debt ratio is the Debt to Equity ratio, which is calculated by dividing its total

liabilities by stockholders' equity. This indicates what proportion of equity and debt the

company is using to finance its assets. In 2014, Google’s Debt to Equity was 25.39%,

which means that for every dollar of equity in the company, there was around $0.25 of

debt. Figures above 100% demonstrate a capital structure that is comprised of greater

amounts of debt than equity. When comparing Google to its competitors, you see that

Google’s ratio was higher than its competitors, though the number was still low.

Ratio 2010 2011 2012 2013 2014 5 Year Industry FB TWTR

Average Average 2014 2013

Debt to 0.2007 0.1988 0.2354 0.2129 0.2031 0.2102 0.2310 0.1017 0.1236

Assets

Debt to 0.2511 0.2481 0.3079 0.2705 0.2549 0.2539 - 0.1132 0.1410

Equity

Stock Price Fluctuation is the final part of the financial analysis. Stock price shows the

company from the perspective of the public. If a company’s stock price increases, it

means investors are expressing their trust in the company. They are basically saying they

believe the company has value and they believe it’ll continue to grow. The graph below

shows the maximum stock time frame available at the time.

33
The graph demonstrates strong fluctuations in the stock price, but this is typical of a

graph representing such a short period of time. Google was a fairly new company at this

time, so there wasn’t a graph that would properly depict the history of its stock price or

the pattern the company was likely to follow. Despite this drawback, the graph does show

the price levels Google was selling stock for at this time, which has them in an

impressive stock price range.

2. Identify and describe the strengths, weaknesses, opportunities and threats of

Google

34
 Strengths
1. It had established a brand name for itself and
was considered to be the number one search
engine on the web.
2. It received reputation by its popularity which
proceeded by its word of mouth publicity, so it
doesn’t need to put much effort in marketing its
search engine.
3. It offered many products and services such as
Desktop products, Mobile products, Web
products, and Hardware products.
4. It hired PhDs specially to work towards
enhancing the search engine algorithms which
will render the search faster, more relevant and
more efficient.
5. It provided the most updated outcomes to its
users by ranking the web pages with its Page-
Rank technology that gave the users access to
the important pages first.
6. Strong liquidity ratio
Weaknesses
1. It relied on one source of income. More than
85% of Google’s revenue came from online
advertising alone.
2. Google was often involved in patent litigations
over breached patents and other intellectual
property. These litigations were costly and
time consuming and distract the company
from innovating rather than litigating80.
3. It had a weak presence regarding the social-
networking space.
4. Decreasing profitability ratios

Opportunities Threats
1. New acquisitions. 1. Competition from Facebook and Twitter.
2. It could diversify into non-ad business models to 2. Unprofitable products. Google has introduced
remain profitable. many products and services but few of them
3. It could grow more into the electronics industry. earn profits for the business.
4. It could continue to improve driverless 3. Falling Ad Rates. In recent years and
electronic cars. especially in 2013, the company has been
5. It could continue its progress with the Android faced with declining revenues from ads and as
Operating System81. a result, the profitability of the company has
6. It could continue progress with Google fiber taken a hit.
cables. 4. Rapidly changing technology

Google’s strengths were that it had a strong brand name with a great reputation

built from a fast, relevant and efficient search engine as well as other products. It

received reputation by its popularity which was proceeded by word of mouth publicity. It

didn’t need to put much effort in marketing its search engine. Its weaknesses were that it

35
relied too much on revenue from ads, didn’t have a strong presence in social media, and

was continuously in litigation wars.

Google had an opportunity involving acquisitions of other companies. Google

acquired Motorola in 2012, obtaining more than 17,000 patents from the business82.

Revenue diversification could be a large opportunity that could create more than one

mode of revenue for the company. Google also had an opportunity to further the progress

of amazing technology it already had under development. Some of these technologies

include electronic devices (smart phones and tablets), driverless electronic cars with

technology that could be easily installed in future models, the Android Operating System

which was a direct competitor to Apple and Samsung, and Google fiber cables that were

being tested to deliver internet content at an astonishing 100 times as fast as providers at

the time83. One of the threats Google must worry about are its competitors, Facebook and

Twitter. The advent of Social Media seriously threatened Google’s dominance in the

internet world and the company had to pull an ace to deal with the increasing features

available on competitors websites. Google also had to worry about the threat from its

unprofitable services. Google offered many online services for free, so they received no

revenue for the time and effort they put into keeping those services at the top of their

game. Another large threat Google had to fight was the falling ad rates and therefore

falling revenue. This is partly due to the global economic slowdown they were

experiencing and partly because competitors were snapping at its heels in a more

aggressive manner. Indeed, Apple had already taken steps to garner search engine

revenues in its devices and hence, Google had to be cognizant of the challenges that lay

ahead84.

36
 When looking at Google’s strengths, weaknesses, opportunities, and threats, there

was obvious room for growth and improvement. Its weaknesses regarding its single

source of income and its weak presence in social media were areas that could be fixed

and improved over time. Google could gain another source of revenue and could develop

a stronger social media base.

Google could have taken advantage of the strength of its brand name to create

new and innovative products and services. That was the advantage of a well-established

brand name. It hired only the best and brightest to work at Google, and this showed in the

quality of products and services provided. Nothing was ever half done, and nothing was

ever above being improved. The type of employee Google hired would not settle for

anything but the best. Google had to continue to fight for these talented people so other

companies wouldn’t get them first. The progress with driverless cars, electronic devices,

and Google fiber cables were opportunities it could take advantage of. These innovations

were industry changing and put Google on an entirely new level as a company.

As a result of the SWOT analysis, the strategic changes Google should have implemented

would be to establish more than one source of revenue so it wouldn’t be so dependent on

online advertising, to establish itself as a stronger competitor in the social-networking

space, to acquire more patents by acquiring other companies with strong patent

portfolios, and to continue pushing the new technology they have in progress as well as

develop more new ideas. Google had the potential to be an unquestionable leader in its

industry, with these changes in place it would send a message to its competitors that

Google was not an ordinary company.

37
3. Conduct a Porter’s Five Forces Analysis of Google.

There are many ways to assess a company’s industry dynamics, but Porter’s Five

Forces is one of the most respected models of industry analysis. Porter’s attempts to

realistically assess potential levels of profitability, opportunity and risk based on five key

factors within an industry. This model may be used as a tool to better develop a strategic

advantage over competing firms within an industry in a competitive and healthy

environment. It identifies five forces that determine the long-run profitability of a market

or market segment85. Understanding the competitive forces, and their underlying causes,

reveals the roots of an industry’s current profitability while providing a framework for

anticipating and influencing competition (and profitability) over time86. These five forces

are Supplier Power, Buyer Power, Barriers to Entry, Threat of Substitute Products, and

Rivalry.

87

38
Supplier Power

Depending on where the power lies, suppliers may be able to exert an influence

on the industry. They may be able to dictate price and influence availability, but because

of the nature of Google’s suppliers, supplier power was relatively low. Google received

most of its revenue from ad sales, and there were an almost unlimited number of

companies and businesses that would pay to have their business advertised by Google.

Therefore, if one business drops their ad with Google, another business would quickly

step in to fill its place. When considering Google’s movement into the mobile phone

market, though, the suppliers had slightly more power, but Google was a power house

and was known for its success. At this time, mobile phone suppliers were working hard to

keep Google happy. However, one large thing Google was considering was their

dependency on Microsoft, and slight dependency to Apple. Google depended on its

search program running smoothly on their products, and would likely have had serious

troubles if they had decided to remove Google capabilities from their computers. This

was improbable because of Google’s success, though. Customers who were loyal to the

Google search engine might have refused to buy a computer if it couldn’t run Google,

therefore the overall power of suppliers was relatively low.

Buyer power

The power of buyers describes the impact customers have on an industry, but as

of August of 2013, Google was the market shareholder88. The pie chart below shows the

market share at that time.

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 89

This graph shows that Google controlled almost 75% of the market. Google’s products

were better, faster, more efficient, and higher quality while offering most of their

products to customers for free. However, the buyer power would be considered moderate

because of the demand for and heavy reliance on search engines in the daily lives of

people using the internet at this time.

Barriers to Entry

While it was possible that a new company could have developed new technology

or a better search engine because most of what Google did was on a programming level

and didn’t rely on raw materials, or Microsoft could have stopped using Google toolbars

in their products and started using their own, these outcomes were very unlikely.

Microsoft didn’t have anything that could keep up with Google at the time and the cost of

purchasing the hardware, the servers they would use to distribute their programmed

product, was a large barrier to overcome. Google was definitely considered to be a

difficult company to beat, especially because of their strong financial position.

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Threat of Substitute Products

It is possible that Google could have lost their customers loyalty to another

product if one was developed that could keep up with the power and speed it had in its

search engine. Google’s customers were asking for more and more services for free, so it

had to keep them happy by constantly upgrading their services while continuing to bring

in revenue. Google also had to keep a strong hold on the market for highly intelligent and

skilled employees in order to keep innovating its technology. However, because of the

similarity of the functions that other search engines offered at this time, they were not

strong enough to be substitute products. Therefore, Google was affected very little by the

threat of substitute products.

Rivalry

Google’s search engine was on an entirely different level than most of its

competitors, but when it comes to ad revenue and the amount of “clicks” its software

receives, Google was fighting against two strong competitors, Facebook and Twitter.

They each had their own method of advertisement, but the ad market was slowly falling

at the time. An advantage Google had was that it’s search technology was so new that

there was very little in the way of government regulations regarding search engines, so

they were able to set the pace and political environment for the industry of search

engines. Another advantage was the brand identity involved with the Google name. Even

in the beginning, news about Google was spread by word of mouth so Google didn’t have

to advertise. This continued to the point where Google was a household name and was

added to dictionaries with the definition, “to search for something on the internet using

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the Google search engine (a computer program that finds information)90.” Google was a

strong company, but there will always be rivals trying to catch up and beat the company

that started it all.

4. Identify how Google employs Blue Ocean strategy. Describe specific

characteristics of the strategy. Provide examples of implementation.

In an increasingly competitive environment, companies look for new strategies to

help them compete on a more effective scale. Some well-known competitive strategies

include Porter’s three generic strategies; differentiation strategy, cost leadership strategy

and focus strategy. Among the three, two of these strategies are used to better understand

a more modern strategy Google excels at. This modern strategy is Blue Ocean Strategy.

Blue Ocean Strategy (BOS) was developed by W. Chan Kim and Renée Mauborgne in

200591. It combines differentiation and cost leadership strategies to create a new

perspective on competition. Differentiation strategy is focused on design innovation,

reliability, and aggressive marketing. The main focus is to provide unique and premium

products. Cost leadership strategy focuses on reducing operational cost and striving to

have the lowest price for the same value.

In simple terms, Blue Ocean Strategy can be described as a mixture of these two

strategies, but there is much more to it. BOS suggests that a company should strive to

escape from the bloody water, or Red Ocean, of the competition for the same market

share and move into the calm, uncharted waters of the Blue Ocean, far away from the

competition. This means, according to BOS, companies who are competing within the

confines of the existing industry or are trying to steal customers from rival competitors

42
would be much better off spending their time and effort on developing uncontested

market space that makes the competition irrelevant.

92

Google was a prime example of BOS. Google identified that there was a better

way to search the internet than by concentrating on selected words chosen by frequency

of appearance. Google developed an easy to use, non-portal, search engine that was

superior to other web search options available at the time. Google made the competition

irrelevant, set the bar high and swam out into uncontested market space. Google’s release

of Gmail in 2004 with an unheard of gigabyte of space for every user was another

product that pushed them further away from the Red Ocean. Google continued its move

toward clear blue water again in 2008 when it developed its Android mobile operating

system. At the time of its release, Android prompted experts to compliment the company,

saying Google had the power to influence, disrupt and rearrange markets93. Other

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products that were in the works and would likely have the same effect on the company

and the market were Google Glass, driverless cars, and Google fiber cables.

Google’s competitive strategy was to put space between itself and its competitors

by creating consistent and highly innovative technological advancements, using home-

made hardware and software infrastructure to provide substantial computing resources at

low cost, and investing substantially in developing its brand. Therefore, it can be said that

Google simultaneously achieved both cost leadership and differentiation strategies and

that encapsulates the underlying concept of the Blue Ocean Strategy.

5. Identify how Google employs the People Analytics strategy. Describe specific

characteristics of the strategy. Provide examples of implementation.

Google was known to be a newer company, only having been built a decade ago

at this time. This gave them an overall aura of being full of the latest and greatest

technology, strategies, and business practices. In a lot of ways, this is true. It was a global

company built by a couple of talented college grads that didn’t want to do what the other

companies were doing. They wanted to create their own path and do things the way they

thought was best, and not by general company standards. There were many aspects of

Google that were very different from normal business practices, but there was one

strategy Google used that was showing results and gaining popularity among other

leading companies. This strategy was called people analytics. People analytics is the use

of people-related data to optimize business outcomes (and solve business problems) at the

individual, team, or organizational levels94. This strategy was used by Google in their

human resource functions, though it could be used in almost any sector of its company.

44
The basic premise of the people analytics approach is the importance of accurate people

management decisions, as they are the most impactful decisions a firm can make.

Common HR sections of this time had been known to make decisions on gut instinct

alone, which is dangerous when dealing with such a large cost section of the company

that often takes up 60 percent of corporate variable costs95.

96

Google reinvented human resources and produced amazing workforce

productivity results that few can match (on average, each employee generates nearly $1

million in revenue and $200,000 in profit each year)97. It even reinvented the name of

their human resources department, calling it “people operations.” One example of

Google’s people management practices that highlight its data driven approach was its

effective hiring and retention algorithms. Google developed a successful algorithm for

predicting which candidates had the highest probability of succeeding after they are

hired, and developed an algorithm to proactively and successfully predict which

45
employees are most likely to become a retention problem, which allowed management to

act before it was too late and it further allowed retention solutions to be personalized98.

Another example is their use of data in improving diversity. Unlike most firms,

analytics are used at Google to solve diversity problems. As a result, the people analytics

team conducted analysis to identify the root causes of weak diversity recruiting, retention,

and promotions (especially among women engineers). The results that it produced in

hiring, retention, and promotion were dramatic and measurable99.

Their data driven approach also improved their workplace design. Google found

that increased innovation in employees came from a combination of three factors:

discovery (learning), collaboration, and fun. It consciously designed its workplaces to

maximize learning, fun, and collaboration. Managing “fun” may seem superfluous to

some, but the data indicated that it is a major factor in attraction, retention, and

collaboration100.

Another example of people analytics in Google was an increase in discovery and

learning. Rather than focusing on traditional classroom learning, the emphasis was on

hands-on learning (the vast majority of people learn through on the job learning). Google

increased discovery and learning through project rotations, learning from failures, and

even through inviting people like Al Gore and Lady Gaga to speak to their employees.

Clearly self-directed continuous learning and the ability to adapt were key employee

competencies at Google101.

Companies like Google considered people analytics to be a core differentiator and

made significant investments to build this capability. There were an almost unlimited set

of business challenges that can be addressed by analyzing the behavior or interaction data

46
that translates to outcomes102. Google knows this and is quickly integrating it into its

company structure. This strategy fits Google culture extremely well, as Google is made

up of mostly engineers and writers of software that don’t always fit into normal business

models.

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Endnotes

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