Case 12

Google’s Strategy in 2010*

Overview
Google was the leading Internet search firm in 2010 with 60-plus percent market shares in both searches
performed on computers and searches performed on mobile devices. Google’s business model allowed
advertisers to bid on search terms that would describe their product or service on a cost-per-impression (CPI)
or cost-per-click (CPC) basis. Google’s search-based ads were displayed near Google’s search results and
generated advertising revenues of nearly $22.9 billion in 2009. The company also generated revenues of
$761 in 2009 from licensing fees charged to businesses that wished to install Google’s search appliance on
company intranets and from a variety of new ventures. New ventures were becoming a growing priority with
Google management since the company dominated the market for search based ads and sought additional
opportunities to sustain its extraordinary growth in revenues, earnings, and net cash provided by operations.

Google launched its Android operating system for mobile phones in 2008, which allowed wireless phone
manufacturers such as LG, HTC, and Nokia to produce Internet enabled phones boasting features similar to
what were available on Apple’s iPhone. Widespread use of the Internet-enabled Android phones would not
only help Google solidify its lead in mobile search, but would also allow it to increase its share of banner
ads and video ads displayed on mobile phones. The company had also entered into alliances with Intel, Sony,
DISH Network, Logitech, and other firms to develop the technology and products required to launch Google
TV. Google TV was scheduled for a fall 2010 launch and would allow users to search live network and cable
programming, streaming videos from providers such as Netflix, Amazon Video On Demand, and YouTube,
and recorded programs on a DVR. Perhaps the company’s most ambitious strategic initiative in 2010 was
its desire to change the market for commonly used business productivity applications such as word
processing, spreadsheets, and presentation software from the desktop to the Internet. Information technology
analysts believed that the market for such cloud computing applications could grow to $95 billion by 2013.
While Google’s growth initiatives seemed to take the company into new industries and thrust it into
competition with companies ranging from AT&T to Microsoft to Apple, its CEO Eric Schmidt, saw the new
ventures as natural extensions of its mission to “organize the world’s information and make it universally
accessible and useful.” In a July 2010 interview with the Telegraph, Schmidt commented that Google’s new
ventures into mobile devices, television search, and cloud computing would allow the company to “organize
the world’s information on any device and in any way that we can figure out to do it.” In July 2010 it was
yet to be determined to what extent Google’s new initiatives would contribute to the company’s future
growth. Some industry analysts preferred that Google focus on improving its search technology to protect
its competitive advantage in search and thereby its key revenue source. There was also a concern by some
that, as the company pushed harder to sustain its impressive historical growth rates, it had backed away from
its commitment to “make money without doing evil.” While free speech advocates had criticized Google for
aiding China in its Internet censorship practices since its 2006 entry into China, authorities in the United
States, Canada, Australia, Germany, Italy, the United Kingdom, and Spain were conducting investigations
into Google’s street view data collection practices. It had been discovered that while Google’s camera cars
photographed homes and businesses along city streets,

Assignment Questions
-1. Discuss competition in the search industry. Which of the five competitive forces seem strongest?
weakest? What is your assessment of overall industry attractiveness?
2. How is the search industry changing? What forces seem most likely to bring about major change to the
industry within the next three to five years?
3. What are the key factors that define success in the industry? What are the key competencies, capabilities,
and resources of successful search engine companies?
4. Describe Google’s customer value proposition and profit formula linked to its business model. What
strategies has Google relied upon to build competitive advantage in the industry?
5. Have Google’s business model and strategy proven to be successful? Should investors be impressed
with the company’s financial performance? How does the company’s financial performance compare to
that of Microsoft and Yahoo? Please conduct a financial analysis to support your position—you may
wish to use the financial ratios presented in the Table 4.1 of the text as a guide in doing your financial
analysis of the company.
6. What are the company’s key resources and competitive capabilities? What competitive liabilities and
resource weaknesses does it have? What opportunities exist? What threats to its continued success are
present?
7. What recommendations would you make to Google’s top-management team to sustain its competitive
advantage in the search industry? How should it best capitalize on its strategic initiatives in mobile
phones, cloud computing, emerging markets, and other ventures?

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