Case

Case: Google

MBA Japan-­‐ INSY 690 (Case Analysis Assignment) Student: Lance Shields

1. What were the key factors behind Google’s early success?
• Perfecting an innovative search engine was clearly the most important factor for Google founders’ early success. Turning the keyword spam problem on the web into an opportunity by solving it while grad students at Stanford led to Sergey Brin’s and Larry Page’s now famous PageRank algorithm. Instead of counting keywords like old search engines, the founders created reliable searches through the number of websites that link to a page or “votes” to weight search result relevance. • Google focusing on the user was another trait that attracted people initially as the nononsense simple white search page and distinctive colorful logo with no ads or editorial content on the page lead to easy and fast searches that Yahoo couldn’t imitate. This is described in their first truism “Focus on the user and all else will follow” where they talk about simplicity of interface and speed of page loads. • Google delivered search results people really wanted lead to users trusting Google as they promise to not sell placement in search results to advertisers and instead rely on the “true” natural search to deliver users the content they really are looking for. At the same time, their sponsored links were relevant to the searched keywords so that users generally found them useful or at least not intrusive like usual banner ads. The sponsored links being just simple text also meant that they were lightweight enough to not slow down page loads and allowed a better search experience. • Effectively monetizing paid search was what made Google economically successful as a business. They did this by first adopting a “cost per impression” in 1999, that made money regardless of whether people clicked on a an ad. Then in 2002, they then altered

the “cost per click” paid listing model that was popularized by Overture by doing a ratio of actual CPC and expected CTR (click through rate) to ensure users saw ads that were closer to what they were actually searching for. By giving users what they wanted, it maximized their revenue by avoiding the problem of high CRC but low CTR.

2. Do you expect the search business to become more concentrated (i.e., dominated by fewer firms)? Is search a winner-take-all business? Why? My initial impulse is to answer “yes” the search business will continue to become more concentrated as Google has clearly dominated this industry and Yahoo can hope to retain market share by offering editorial content that some users may be “tricked” into viewing. But as modern web surfers have become more sophisticated and empowered to seek out content in less orthodox sites, Google’s democratic style of search combined with its enormous scale of indexed web pages leads to results more fitting to users, especially younger ones. This very scale of indexing presents a head start for Google that makes market entry near impossible. At the same time, innovative search engines continue to come out as seen by Cuil.com1 that went live in July 2008 and claimed to have the largest index in the world at 120 billion sites. Cuil’s differentiation is it’s concept of not relying on just “superficial popularity metrics” but Cuil searches for and ranks pages based on their content and relevance. At the same time, they provide “helpful choices and suggestions until you find the page you want” by showing relatively long entries along with thumbnail pictures for many results. Cuil also claims to focus on analyzing web content rather than users to give better results based on the

1 http://www.cuil.com/ and http://www.cuil.com/info/

coherence and quality of the content. Unfortunately for Cuil, the wide coverage of the search engine was dampened by technical issues of reports of improper results appearing. Most likely the innovative interface they invented was too unique and possibly to challenging for users who were used to the much simpler Google results pages. And then there’s Bing, Microsoft’s recently rereleased engine that is now number three in query volume at 3.16% (Google 85%, Yahoo 6%). What’s probably most significant about Bing recently is the search deal with Yahoo in which Microsoft has taken the responsibility of powering Yahoo search with Bing search, eventually to feature “Powered by Bing” in the future and will be a lift for Bing and something it was missing the chance to do with Google dominating. For Yahoo this means it can focus on its “strengths as a producer of Web media sites, from finance to sports, as a marketer and a leader in on-line display advertising that accompanies published Web sites”.2 With Google now taking 85% market share, it certainly seems that it’s a winner-takeall industry. With Google’s large lead and gargantuan resources to throw at any new innovation it decides to take on, it would take more than a good idea to beat this giant. What would be needed is another disruptive technology that connects future users in ways that Google hasn’t addressed.

3. In addition to enhancing its core search businesses, should Google also branch out into new arenas? Which of the following would you recommend: 1) building a fullfledged portal like Yahoo!’s; 2) targeting Microsoft’s desktop software hegemony; 3) becoming an e- commerce intermediary like eBay?

2 http://topics.nytimes.com/top/news/business/companies/yahoo_inc/yahoo-­‐microsoft-­‐deal/index.html

For Google, they have been experimenting with a variety of online software that drives travel to their site and provides opportunities for in contextual Sponored Links related to the content the user is engaged in creating such as in Gmail and Google Groups. By providing ad funded web services, Google could solve one of the fundamental contradictions of its business model, to generate revenue users have to click a sponsored link in a search a search result and leave Google, in other words they want people to leave as possible by dishing up the most relevant ads as possible to the user’s search. But what about the rest of the time people spend on their computers when they’re not searching? By moving people online to use Google’s communication and productivity tools, they are creating numerous new opportunities for ad revenue opportunities. By scanning the content of the users’ mails, messages, documents and to-do’s, Google gains insights about what sort of services or products that their advertisers offer which the user might be interested in. At the same time, this solution to increasing the scope of Google’s business, opens another can of worms in that it does not appear appear to be consistent to the company’s founding mission, “to organize the world’s information and make it universally accessible and useful”. In some ways, by channeling people into their own services rather than making other sites more visible, Google could be reducing the democratic nature of the web, something akin to what Yahoo has done by creating an editorial content destination in order to retain users rather than send them out to possibly even more relevant and useful websites or blogs. As I am an avid user of many of Google services such as Gmail, Calendar, Custom Homepage, Google Docs, Sites, Wave and Picassa, I can honestly say I have been generally pleased by these additions and the overall integration to make me more productive and bring me information wherever I am. At the same time, I pay very little attention to the Sponsored

Links in these services, which tells me that the contextual links in Google apps have a much lower CTR compared to search results. Google will have to think further about how to both maximize ad revenue and provide useful experiences that change the way people use computers and mobiles. I also think that as Google gets mature, it needs to be careful about sacrificing its unique idealism for continuing to grow by dominating the web and destroying healthy competition which leads to innovation. By replacing MS Office, an outmoded local software model, they help to usher in a new ubiquitous computing era. At the same time, they are a business and are competitive and have the potential to squash other new innovations before they ever come to light.

4. Do you view Google’s distinctive governance structure, corporate culture, and organizational processes as strengths or potential limitations? Why? I would say that in general, for the kind of innovations and technology that Google produces, their governance, culture and processes are perfectly suited for generating one great idea after another. The three top executives have a keen instinct for where to take the company and I agree with them when they say hostile takeovers would only put their long-term vision in jeopardy. The media model may very well be a good one to compare them to, as they are both are reliant on creative vision and talent. The creative corporate culture is superb for attracting bright minds and Googleplex is a perfect laboratory/playground for creating the Google magic. The organizational process of allowing all employees to use 20% of the work time combined with the small team work style appears to be a good formula for generating rough and dirty prototypes that if found of value can then be developed more fully from alpha to beta. The only limitations I can see is the possibility of ego getting in the way of

doing great work and the size of the company eventually turning employees and customers off of the company. This could very well be a branding challenge for Google in the near future of how to deal with growing into a big corporation.

5. My Question: What will Google be like in the coming 5 years? What challenges will it face? The answer to the first question is that in many ways Google cannot indeed avoid becoming like Microsoft. New Yorker media columnist Ken Auletta, author of “Googled: The End of the World as We Know”, argues that the biggest challenges for Google will be internal ones. He says that with size and success comes hubris, as Google unlike Apple has not yet met any major failures. 3 Losing touch with reality and being unfocused on various projects, from Android to bringing wifi to San Francisco. At the same time, unlike Microsoft, Google was founded on very non-corporate principles such as democracy on the web and “making money without doing evil”. This could help sustain an innovative culture into the future. However, already many of Google’s smartest people have left the company such as VP of online sales and operations Sheryl Sandberg having moved on to become the COO of Facebook. There are also reports that Brin and Page themselves are getting older and spending more time on their hobbies and new families than they used to. The true businessman of the three, Eric Schmidt could end up taking more of the lead in the future, shaping the company more like a typical company and possibly more like a Microsoft.

3 http://www.telegraph.co.uk/technology/google/6459437/Googles-Eric-Schmidt-sets-out-the-search-engines-future.html

Externally, Google by becoming a Microsoft has “woken up the bears”, attracting negative attention and competition from everyone from Microsoft and AOL to U.S. and EU governments, causing organizations to band together to go up against the giant. I believe a big part of the next 5 years will be the mobile web and bringing new levels of information and search. The iPhone and the App Store will certainly be a continuing threat to Android and its open standard. Open innovation will become more a marketing spin as Google positions itself as the “open giant” and Apple continues staying proprietary, however contradictory things are with Apple’s open App Store and Google’s closed search strategy. Chinese search, the overflow of Chinese language websites and Chinese government policy will continue be a challenge as the company attempts global control of the search market. Like the locally flavored Yahoo Japan’s dominance as it suits local needs, Google may very well not be able to suit the Chinese surfer’s unique cultural needs and Baidu could very well beat Google in its home market. In the end, the question is whether Google can continue staying focused on the end user and produce new and disruptive innovation to shape the future of search and the web as a whole. While conspiracy theories grow day by day, I would say that Google shows no true sign of stopping its endless stream of new ideas for the market. I myself will continue being a loyal user of their search and online software. However, Apple has my mobile dollar and as I increasingly surf on the mobile, my attention could very be distracted. Google’s future looks bright but is in no way a sure thing.