2008

Thesis

Ben Morrow

[GOOGLE’S SUCCESS]
While other companies were busy cramming the most ads possible on their homepages or
squeezing every last hour of productivity out of employees, Google created an enjoyable experience
for every party involved in the company including users, employees, and investors. Google’s success
has come as a direct result of keeping people happy.
 TABLE OF CONTENTS

History.......................................................................................................................................................................................... 4
External Analysis ..................................................................................................................................................................... 4
External Environment ...................................................................................................................................................... 4
Global .................................................................................................................................................................................. 4
Demographics.................................................................................................................................................................. 4
Technology ....................................................................................................................................................................... 5
Economic ........................................................................................................................................................................... 5
Political and Legal .......................................................................................................................................................... 5
Socio-Cultural .................................................................................................................................................................. 5
Stakeholders ......................................................................................................................................................................... 6
Porter’s 5 Forces Analysis ............................................................................................................................................... 7
Potential New Entrants ............................................................................................................................................... 7
Suppliers ............................................................................................................................................................................ 7
Current Competitors..................................................................................................................................................... 7
Customers ......................................................................................................................................................................... 9
Potential Substitutes .................................................................................................................................................... 9
Internal Analysis ....................................................................................................................................................................10
Mission Statement ............................................................................................................................................................10
Financial Analysis .............................................................................................................................................................11
Value Chain Analysis .......................................................................................................................................................12
Competitive Advantages ................................................................................................................................................13
Value ..................................................................................................................................................................................13
Rarity.................................................................................................................................................................................13
Imitability ........................................................................................................................................................................13
Substitutability..............................................................................................................................................................14
Strategic Direction ................................................................................................................................................................14
Strategy .................................................................................................................................................................................14
Stated Strategy ..............................................................................................................................................................16
Strategic Fit .........................................................................................................................................................................16
Other Strategies .................................................................................................................................................................18
Start-ups ..........................................................................................................................................................................18
Acquisitions ....................................................................................................................................................................18
Alliances ...........................................................................................................................................................................18

2
Leadership & Culture ...........................................................................................................................................................19
Structure ...............................................................................................................................................................................19
Culture ...................................................................................................................................................................................19
Employee Perks ............................................................................................................................................................20
Leadership ...........................................................................................................................................................................21
Problem Identification and Recommendations ...................................................................................................22
Conclusion ................................................................................................................................................................................23
Appendix A ..........................................................................................................................................................................24
Appendix B ..........................................................................................................................................................................25
Appendix C...........................................................................................................................................................................26
Appendix D ..........................................................................................................................................................................27
Works Cited..............................................................................................................................................................................28

3
 HISTORY

Google's founders, Larry Page and Sergey Brin, met by chance on a Stanford University tour in the
summer of 1995. Page, at the time, was working on a PhD research project involving the
mathematical properties of the link structure on the internet. The research project, "BackRub", used
an algorithm to follow the links in a webpage and analyze all the connections. The PageRank
algorithm generated a popularity index for each web page based on the quantity and quality of
incoming links. By 1998 Google’s web crawler had indexed 60 million URLs and the company had
been formally incorporated.

In the next few years Google became the gateway to the internet for the masses, as well as a traffic
director that could make or break a company with its search rankings. Google Docs, Gmail, and
Google Earth demonstrated the company’s aspiration to move beyond simple web queries, and its
ability to merge playfulness with unparalleled functionality.

While other companies were busy cramming more motion ads on their homepages and squeezing
every last hour of productivity out of employees, Google created an enjoyable experience for every
party involved, including users, employees, and investors. Google’s success has come as a direct
result of keeping people happy.

EXTERNAL ANALYSIS

EXTERNAL ENVIRONMENT

GLOBAL

Internet search is applicable to most cultures all over the world freeing Google from geographic
dependence. In fact, the company now has 20 offices in the U.S. and international locations in over
30 countries working on research, sales, and marketing (Google, 2008). Google offers a
personalized search engine for more than 115 countries, and as language support improves, the
company is likely to gain market share. As computers become more affordable, many people in
economically disadvantaged countries are gaining access to the internet for the first time and
Google would like to route them through its search and productivity products, like Gmail, Docs, and
Sites. Google’s web applications are now bundled into the operating system on low-cost Linux-
based computers (Blankenhorn, 2008).

DEMOGRAPHICS

Google is well positioned in demographics because it has a relatively young userbase. This means
that it will be less affected as the Baby Boomers age in comparison to other companies that depend
on the 50 to 60 year-old demographic group. Internet search is also not a gender-specific issue, and
would not be hurt by changes in the ratio of female to males. The company will however benefit
when some traditional and paternalistic societies begin using the internet more frequently.

4
 TECHNOLOGY

Technology is obviously always improving and Google has taken specific measures to make sure it
does not fall behind. Google can use commodity computer parts (cheap components) knowing they
will fail by ensuring that every component always has a duplicate. The components are attached to
the computer with Velcro rather than screws which allows for quick swapping and upgrading (May,
2007).

ECONOMIC

The United States is currently in a period of recession and stocks are trading at 52-week lows.
However, technology companies like Google are relatively isolated because search and
consequently internet-based advertisements have become a staple to the world society and
economy. In fact, a recent Wired magazine article says that Google “looks particularly well-
positioned to weather the downturn. Google's focus on highly targeted, measurable advertising
makes it more recession-proof than many other businesses in tech.” (Schiffman, 2008) The crucial
need to stay informed and constantly connected keeps such services vibrant despite the parched
surroundings.

POLITICAL AND LEGAL

Formal institutions have not significantly affected Google’s operations, although Google has faced
pressure from the Department of Justice to relinquish archived search terms (Buncombe, 2006) and
from the Chinese government to censor search results (Liedtke, 2005). Google’s “Don’t be evil”
mantra has been put to the test as users ask whether cooperation with governments undermines
their privacy and freedoms. In 2008, Google responded to customer concerns when it added a
privacy link to its home page. This link took users to a Privacy Center where they could learn about
Google’s policies in regard to political and legal issues (Google, 2008).

Google has also faced concern on copyright issues because the company stores copies of third party
web pages and images on their servers. They have responded to this criticism by releasing a
copyright information page. The page provides the relevant information regarding digital
information and provides links to notify both Google and the U.S. Copyright Office of suspected
infringement (Google, 2008).

SOCIO-CULTURAL

The world is increasingly becoming more connected due to the means of communication available
through the internet. And, for many people, the search giants like Google make the internet
navigable. As internet use increases among all age groups and across all cultures, we will become
increasingly more dependent on internet search.

In addition, most new cell phones are internet capable devices. People will use these devices for
driving directions, to locate restaurants, check sports scores, download music, and even quick
research. Google stands to benefit from this with an increased number of search queries. To enable
more people to access Google’s services from their mobile devices, the company has released its

5
Android Mobile Phone Platform and Operating System as well as the Google Mobile App that can be
downloaded on other platforms such as the Apple iPhone.

STAKEHOLDERS

Stockholder

Media Employee

Comm-
Customer
unity

Govern- Suppl
ment Google ier

Financial
Activist
Institu-
Groups
tions

Trade
Uni
Associa-
on
Compe- tion
tition

Figure 1. Stakeholder Importance

Google has a responsibility to manage its operations for the benefit of its stakeholders. Stakeholders
include not only the shareholders of the company’s stock, but also the employees, customers,
suppliers, trade associations, and community. Google decisions may be influenced by the
government, activist groups, and the media, all who have their own agendas and responsibilities to
the people they serve. Each stakeholder has a relationship with Google and this relationship is the
source of the stakeholder’s power to affect Google’s decisions. Google’s distributed business model
ensures that no stakeholder has a level of importance that could singly change the direction of the
company, but the way that the mass of web users, media, and governments interpret their activity
could influence the company’s objectives.

It is Google’s management’s job to ensure the survival of the firm and the long-term benefits of the
stakeholders. Litigation and politics often have an effect on both the short-term and long-term
results and that is why it is important to be vigilant of the external environment. Some stakeholders

6
have conflicting claims, such as the user’s right to information and the government’s responsibility
to protect information – or consequently, the user’s right to privacy and the government’s right to
access records. Management is tasked to weigh the seriousness of each claim and decide which
outcome will best benefit the majority of their stakeholders.

PORTER’S 5 FORCES ANALYSIS

Porter’s 5 Forces analysis is a framework for industry analysis and business strategy development
relative to the competitors of the firm (QuickMBA, 2007).

POTENTIAL NEW ENTRANTS

The barriers to entry in the internet search market are high. The current competitors have
thousands of servers deployed in locations all over the world and have accumulated many years
worth of data about user habits. A new entrant would need to provide better search results at very
fast speeds to compete in this highly competitive market. With that in mind, it must be recognized
that when Google was founded in 1998, Yahoo, Excite, and Altavista dominated the search market
and Google has since eclipsed them all (Viney, 2007). The market now, however, is more mature
with a necessary path dependency to gather data on both the content of webpages and the search
history of users. Therefore, the threat of new entrants in the internet search market is relatively
low.

SUPPLIERS

Google’s ad system is a reliable source of income because both the ad-making partner and ad-
receiving individual are both customers of Google’s. So as long as Google maintains its market
dominance with the search product, supplier bargaining power will remain low. Google’s cost of
revenue as a percentage of sales in 2007 was 40% (Google, 2007). This number is the same for
Yahoo (Google, 2007) suggesting that both companies are equally efficient at maintaining supplier-
seller collaboration.

CURRENT COMPETITORS

Google’s stated goal is to “organize the world’s information” (Google, 2008), and to merit they have
created many complimentary products to their main internet search service. Targeted
advertisements based on the information they collect with their products are Google’s primary
source of revenue. In 2007, Google had revenues of $16.6 billion which grew an average of 115%
annually in the preceding five years (Google, 2008).

7
 12,000,000,000
Google Revenue Growth
10,000,000,000

8,000,000,000
2003
2004
6,000,000,000
2005
2006
4,000,000,000
2007

2,000,000,000

0
Revenue

Figure 2. (Google, 2008)

Google’s main competitors, Yahoo, and Microsoft (operating under their respective brands - MSN
and Live Search), posted revenues of $7.0 billion and $51.1 billion respectively (Google, 2007).
There is a dizzying amount of money made in this industry.

Presently, Google commands 57% of internet searches in the United States (Agence France-Presse,
2008). This large market share enables them to improve the quality of their search results and
targeted ads more quickly than their competitors. This creates a sort of self-perpetuating draw for
customers as the search results constantly improve. Yahoo and Microsoft lag behind with 23% and
11% respective market shares (Figure 3) (Agence France-Presse, 2008). The competitive rivalry is
strong and ongoing in this industry because large amounts of advertising dollars flow to the
website that has captured the largest volume of searches.

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 Search Engine Market Share

11%

Google
23% Yahoo
Microsoft
57%

Figure 3. (Agence France-Presse, 2008)

CUSTOMERS

As of 2007, 99% of Google’s revenues are derived from advertising (Google, 2008). However, no
single account contributes more than 3% to net revenue, and less than 5% of the revenue is
generated by any given network partner site (Google Inc., 2007). This means that no single buyer
has a controlling interest. In Google’s system many advertisers bid on keywords. Popular keywords
like “Dallas Texas” are sold for much higher value-per-clickthrough than obscure topics (Google,
2008). This distributed approach allows Google to attract both large companies and small “mom-
and-pop shops” keeping buyer power low.

POTENTIAL SUBSTITUTES

In 2008, the internet has become the mode chosen by millions of people all over the world to
request and retrieve information. In light of this fact, there really is no suitable substitute for
search. Information can be organized in different ways including categories and sorted by date, but
Google provides tools to complete these tasks as well as conduct searches. A substitute product may
be invented in the future, but there are no obvious substitutes to organizing information on the
internet.

Google has positioned itself well to weather each of Porter’s Five Forces of Competition as well as
stay afloat in a turbulent external environment. Google’s ability to please its stakeholders will
continue to define the success of the venture and the future of the company.

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 INTERNAL ANALYSIS

MISSION STATEMENT

Google’s mission, “to organize the world’s information and make it universally accessible and
useful” (Google, 2008), speaks to their goals, but does not reflect the way they earn a profit. The
statement definitely gives the company a future to strive towards, as it will be quite some time
before all of the world’s information is easily accessible even though they have made great strides.
The mission statement sets the company up as a resource that would be used by anyone who was
doing research whether as part of a thesis or just a question out of curiosity. The mission statement
doesn’t give a timeline, it only states the end result. The mission statement is broad enough that it
allows for Google to use any means possible to organize information. This means that they are
neither limited to search nor are they limited to using the internet in its current form.

The mission statement is graphic because it gives a sense of the scale of the endeavor in its bold
declaration “to organize the world’s information” and become “universally accessible”. This definite
goal with a strong focus gives the statement direction and flexibility as it does not specify the
means, leaving lenient room in the respect of the physical products the company will produce. All
the worlds information could never be made searchable or categorized because some data is
private and other data is not defined in a computer readable form. However, even though the
mission statement isn’t strictly feasible, it is desirable, motivational, and long-lasting. Google’s
mission statement is quite distinctive and original because the scope of the project is much larger
and more long-term than most other companies would aspire towards. It is complete in the sense
that the goal is not just to organize information, but also to make it accessible and useful.

Figure 4. Home Pages

The statement is forthright in understanding the boon and the banes of advertisements to search
engine users in its suggestions that “advertisements should not be an annoying interruption”
(Google Inc., 2007) Figure 4 displays the difference between the homepage of the top competitors
in the search industry. Google has long held a very human-centric point-of-view, and their mission
statement reflects their dedication to user experience in their promise to “provide the most
relevant and useful search results…independent of financial incentives” (Google Inc., 2007). Google
is quick to recognize that customer faith will provide the basis for “increased traffic and strong
word-of-mouth promotion” (Google Inc., 2007).

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The mission statement will probably not change either through the actions of competitors or
through a changing external environment. Information retrieval is likely to only become more
important in the future and therefore Google has set itself up well with the long-term vision of their
mission statement. This projected prosperity does not, however, include the discussion of the
company’s stakeholders in the statement or specifics on the monetary value creation.

FINANCIAL ANALYSIS

Google is a relatively young company that has been public since August 2004. At that time, a share
of the stock sold for a paltry $85. By late 2007, the stock had reached a high of around $750, a
whopping 882% return in 3 years (Google, 2008). The shares have now dropped down to the high
$300 range (Google, 2008) due to the recession the United States is currently experiencing.

Google derives approximately 99% of its revenue from advertising (Google, 2008). Most of its
online products are free to use and are supported by text ads that are displayed within the interface
(Google Inc., 2007). This begs the question of whether Google has a sustainable business model if in
the future people begin to ignore internet-based advertisements.

Financially Google is in much better shape than its main competitor, Yahoo. Google has about 2.4
times the revenue of Yahoo (Appendix B), but common size ratios allow comparison of the two.
Google has a much higher Income from Continuing Operations/Sales ratio (Appendix B), which
indicates that Google is more profitable than Yahoo. The two companies have a roughly equivalent
Cost of Goods Sold/Revenue ratio at 40%, but Google’s Liabilities /Total Assets ratio is half of
Yahoo’s indicating that Google is managing their debt better. Google’s Return on Assets shines as
well at 23.2% versus Yahoo!’s 5.9% (Appendix B).

Keeping in mind the facts mentioned in the previous paragraph, Google slowed down by the end of
the 2007 fiscal year. The growth ratios such as Sales Growth, Income Growth, Asset Growth were all
down from 2006 (Appendix A). In addition the Activity ratios of Receivable Turnover and Fixed
Asset Turnover were also down slightly (Appendix A). Profit margin and Return on Assets were
also down, but still at healthy levels. These numbers do not mean that Google is in trouble; after all,
they are still much higher than Yahoo!’s ratios. What they mean is that Google is moving out of its
explosive, exponential growth and it will eventually settle at a more steady growth rate if their
business model remains successful. No company can sustain a greater than 50% growth rate for too
many years in a row.

Google’s spectacular growth is shown in the charts in Appendix C. In the past 5 years revenue has
grown from $1.47 billion to $16.59 billion. In the Net Income Trend Graph, the revenue growth is
pleasantly tracked by the net income.

Google is not a seasonal or a cyclical company, because its services are constantly desired. Appendix
D shows that Google has not yet had a quarter where income or revenue was below the previous
quarter’s reported numbers. Since the fourth quarter has not yet been reported for 2008, the
Current Year Quarterly Stock Prices table in Appendix D shows fiscal year 2007 numbers. As stated
earlier, Google’s stock performed remarkably through the end of 2007 and the Quarterly Stock
Highs and Lows graph showcases that continued growth (Appendix D).

11
 VALUE CHAIN ANALYSIS

Google’s primary activities in its value chain vary slightly from a traditional model where raw
materials are processed into finished goods for sale to a customer, gaining value in each step of the
process. Since Google doesn’t produce physical products, its value chain is a bit more nuanced.
Google gathers all the web users it can (the raw material) by enticing them to use its stellar search
product with highly relevant results delivered promptly. Then, through assorted “signs” (text
advertisements) it directs these same web users in the form of traffic to its advertising partners
who transform the traffic into “conversions” or sales on their sites (the finished good). Google adds
value not only by directing a quantity of web users to specific sites, but also by sorting the pre-
qualified visitors using keyword association and search history to recognize users’ interests (Levin,
2007). In this manner, Google ensures that the users who are directed to a partner site are more
likely to purchase a product there.

Figure 5. Google’s Value Chain

Google’s primary activities in its value chain are heavily dependent on the support activities of
administration and human resources (Figure 5). Google has always tried to hire the most qualified
and competent individuals to ensure that it excels at the research and development of its
technology and systems. In fact the company often gives aptitude challenges and tests to help
recruiters sift through the massive amounts of resumes they receive (Kopytoff, 2005).

Next to the employees, a large percentage of the cost structure is the infrastructure and systems.
Google’s servers and internal software allow it to conduct operations, distribution, sales, and
service. Each activity contributes to the value chain by increasing the profit of the firm. Google has
locations all over the world (Google, 2008) to localize distribution, marketing, and service which in
turn ensures maximum profit on a global scale. Profit is maximized by the company’s cultural
awareness and social competence to tailor products to the regional needs of its users. By shifting
activities geographically, Google can also take advantage of diversity from a human resources
perspective and also perhaps lower salaries in countries other than the United States. Google has
even begun outsourcing some of its copywriting to firms in India (Baker, 2006).

Google uses advanced analytics to measure the efficiency of its supply chain (the web users). This
data about the history of its users is important because it helps Google improve its search

12
algorithms and advertising interface. New technology and word-of-mouth promotion by its loyal
users can bring in new customers and thereby increase the profit margin.

COMPETITIVE ADVANTAGES

Google has sustainable competitive advantages because the remarkable scores accrued in measures
of value, rarity, imitability, and substitutability.

VALUE

Google’s search products bring value to their customers because they provide relevant websites
promptly. Google has achieved the top market share in the search industry precisely because their
product is rare. They are able to provide excellent links in the first few results for both well-known
subjects such as “Dallas Cowboys” and uncommon, “long-tail” searches like “cerebrospinal fluid”.

As mentioned in the Value Chain section, Google excels at directing a large quantity of visitors to
websites using its AdSense program. Many business are dependent upon the traffic AdSense brings
to their website to generate income. For the advertisers this increased traffic translates into
increased sales and directly helps the bottom line.

RARITY

Google’s search offerings are rare because of the relevancy of the results. Microsoft and Yahoo,
Google’s main competitors, simply do not provide links that are as useful as Google’s.

Google’s website features a minimalistic design, which is uncommon. Most websites feature some
sort of banner advertising and are littered with hundreds of words. The Google home page can only
contain 28 words as a policy established Sergey Brin and Larry Page, the company’s founders. This
keeps the clutter to a minimum which is a stark contrast to Yahoo and Microsoft’s search home
pages.Google faithfully adheres to the provision in the mission statement which recognizes that
“advertisements should not be an annoying interruption” (Google Inc., 2007). This rare service is
testimony to their charge to never “compromise…user focus for short-term economic gain” (Google
Inc., 2007).

IMITABILITY

Google’s results are not easily imitated because of the large infrastructure requirements to serve
the relevant pages quickly. Google has servers all over the world all synced up and all running on a
very large quantity of RAM, fast computer memory.

With each search Google refines its results so that the search engine gets “smarter” and caters to
people’s individual preferences. Since Google has the largest market share, their search engine can
effectively learn more quickly than competitors’ products.Google’s operations exhibit path
dependency because it takes time to collect the data to provide results and even more time to
analyze both the content and users reactions to the results. Without going through a process of
refinement over a significant period of time, a competitor could not replicate Google’s search
results. Google has used its analytics tools to help understand the social complexity of the meaning

13
of keywords to specific groups of users. For example, one word like mouse has a variety of different
meanings with each meaning being most important to certain people.

Google’s minimalistic interface is physically unique and has remained different because the
competitors value advertising money more than user experience and devote larger swaths of
screen real estate to graphical and motion ads.

Some of Google’s success is due to its strategic management or simply to the luck of being at the
right place at the right time. This causal ambiguity leads to the belief that perhaps the time to start
an internet search company was in the 1990’s and it would be vastly more difficult to gain market
share in a competitive environment where users are used to the novelty of Google’s interface.

SUBSTITUTABILITY

There are different ways of organizing and accessing information, and right now searching the
internet is arguably the best for retrieving information efficiently. Google does not confine itself to
the search product it is most well known for and has special applications for browsing different
kinds of information such as its Shopping, Books, and Music applications.

Google consistently delivers relevant results at blazing speeds with minimal hassle. These three
competitive advantages set its core search functionality apart from the competitors whose web
portals simply can’t keep up. Google should be able to sustain its competitive advantages through
the foreseeable future, but it will need to continue to innovate new ways to diversify its advertising
business so the company is not dependent on solely the AdWords service.

STRATEGIC DIRECTION

STRATEGY

Google’s strategy is built on a strong foundation

of broad differentiation of complementary
products. Complimentary products serve to
increase the use of the each of the other products
and increase brand awareness. Several of these
unique provisions include its Docs &
Spreadsheets productivity suite, Picasa the image
organizing and editing program, Earth and Maps.

These products are the key to augmenting the

company’s advertising business and expanding
the breadth of the brand. Google reinforces its
brand image by keeping its name in nearly all its
products. From Google’s perspective, the more
uses a person has for Google services, the more
opportunity there will be to show them ads.
Figure 6. Products of the Brand (Joaquin,

14
Figure 7. Google Products Yearly Unique Visitors (Riley, 2007)

Google also knows that an increase in the number of internet (or other information media) users
will in turn bring more users to Google. This is why Google encourages free internet access with
citywide wifi and lobbied the Federal Communications Commission to allow use of the “white
spaces” as recently as the first week of November 2008 (Lawson, 2008). These unused frequencies
between television channels can be utilized to create a situation where a person is always freely
connected to the internet (and in turn, always viewing Google advertisements). Another example of
this phenomenon is Google’s recent foray into the cellphone business. Google introduced the T-
Mobile G1 and its accompanying operating system, Android, in September 2008 (Guynn, 2008). By
creating a phone operating system built around the internet and integrating Google’s search and
other web technologies into the device, Google appears to be pushing the adoption of smartphones
and changing consumers’ perceptions of the purpose of a “phone”. The old mode of
‘communication’ is now the new mode of ‘living’. By making such useful products cheaply available,
more customers today are able to meet a wide range of wants through the products and services
Google offers.

15
Google’s products do not fit nicely into a BCG
matrix, which is better suited to the
incremental innovation at traditionally-
managed companies. Figure 7 demonstrated
that the company does have a few breakout
successes like Book Search, but other
seemingly mature product markets such as
email yielded success as well.

Google does not make money on most of its

products, which is a stark contrast to most
successful companies. For example,
advertisements in the mail interface have
notoriously low click rates, because people
simple aren’t shopping for products while
they are checking their email. But Google
refuses to be anxious by this as the AdWords
on their search service and AdSense on external sites are enormously popular and keep the
company profitable. Secondly, Google’s goal is less about making money with their products and
more about gathering information. The more data Google can gather and associate with a user
account the more they can learn about what associations to make to give better relevance to their
search product and the ads in the search interface. Eventually, all the ads will be personalized in a
way that television advertising agencies could only dream of with their age and gender
demographics. Google’s advertisements will be personalized according to hobbies,interests, and
even one’stendency to purchase a specific type of product online.

Figure 8 shows a rather humorous view into the future where Google’s information indices extend
beyond the outside internet to a much more personal level. The sober fact is that this idea is not
farfetched at all. Google’s overarching strategy is to maximize its information gathering about
individuals so it can transition its relevance algorithms from content-based to individual interest-
based so that banner ads are just as much of a resource as text.

STATED STRATEGY

Google stands true to its declaration in the company mission statement to “organize the world’s
information and make it universally accessible and useful”. This statement provides Google the
opportunity to create its own microcosm of the world and opens the door to virtually limitless
expansion. It has expanded nationally and globally, providing the premier search service in
numerous languages and countries. But, Google’s great organizational skills are not just
philanthropic – the company uses the same relevance data for its search results that it uses to
deliver advertisements and make money (Google Inc., 2007).

STRATEGIC FIT

The leading competitors to Google’s work strategy are the technology giants, Yahoo and Microsoft.
All of these companies’ motivations are simple -- try to draw the most advertising dollars from their
respective internet properties.

16
 Figure 9. Ad Server Market Share (Attributor Corporation, 2008)

Ad Server Monthly Unique Market Share Unique Domains Market Share

Users
Google 1,107,489,739 35.30% 91,462 77.28
Double Click 1,079,203,140 34.39% 6,748 5.70%
Yahoo 362,201,931 11.54% 5,147 4.35%
MSN 309,290,121 9.88% 8,099 6.84%
AOL 156,109,326 4.98% 1,976 1.67%
Adbrite 73,446,676 2.34% 3,575 3.02%

However, Google manages to stay abreast of the crowd as illustrated in Figure 9 which displays
Google covering over 90,000 domains and thus having the broadest reach. They also control
DoubleClick, which is the image banner advertising complement to Google’s text ads. These two
companies together draw the vast majority of unique users.

Google Yahoo! Microsoft

To organize the world’s To connect people to their To enable people and
information and make it passions, communities, and the businesses throughout the
universally accessible and world’s knowledge. world to realize their full
useful. potential.

Each of the competitors offer many services on their websites and strategically do so to try to
engage users for as long as possible. Each of their mission statements seem to indicate that they
wield the world’s information to facilitate human connections. However, this was not always so --
when Google was started, it distinguished itself not by offering many products but simply making
search work as fast as possible. The company sought to go in a different direction than the other
web portals that tried to bring everything to the user on their home pages. While Google has
maintained a very sparse, minimalistic design on its home page, the company has added all the
services of its competitors (and more) to its war chest.

Figure 10. (Rimm-Kaufman, 2007)

17
The cost to place an ad through Google’s AdWords program has increased over time, which is
attributable to their increasing market share and leverage in the industry. However, the Average
Sales Per Click in Figure 10 shows that Microsoft is more effective at generating conversions, from a
click on an ad to the actual purchase of product.

OTHER STRATEGIES

Google regularly explores all three manners of diversification with new start-ups, with acquisition,
and with strategic alliances.

START-UPS

Google has a rule that employees can spend 20% of the time working on pet projects that are not
part of their job description. Such motivation helps Google innovate and diversify into previously
untapped businesses but usually still makes use of their core competencies and capabilities. In fact
both Gmail and Google News started off as 20% projects.

ACQUISITIONS

Several of Google’s products are derived from acquisitions including Docs, Earth, and YouTube.
These products have expanded Google’s brand and brought the previous users of these services to
Google. DoubleClick , as mentioned earlier, added the banner component of Google’s advertising
business and brought along significant revenue to Google’s income statement.

ALLIANCES

It is interesting to note the Google and Yahoo recently explored an alliance for advertising but
federal judges threatened an antitrust investigation so Google backed out. This move did not cause
a financial setback being prompt and respectful of other partners. Yahoo and Google in fact have a
history together. Back in the early 2000’s Google provided all of Yahoo’s search results.

Google has in the past started organizations to leverage the power of alliances. One example is
OpenSocial which allows developers to create applications that will work on all the member
companies’ websites. By giving developers a common API, the alliance hopes to draw some of the
attention away from Facebook, which is the largest social networking site. Google also created the
Open Handset Alliance to promote the use of its open source Android operating system. This
alliance leverages the capabilities of both phone manufacturers and independent developers to
compete with Microsoft’s Windows Mobile platform, RIM’s Blackberry, and Apple’s iPhone.

Google understands the wealth in diversification. Exploring new opportunities constantly over a
solid base of research could prove profitable with the use of products that can reduce cost – cost of
production, advertisements, etc. These new products are crucial in gaining leverage in the
constantly changing market and providing an alternative industry if need be. Google understands
that valuable profits and minimized risk can be garnered with international operations. The
company’s international revenue totaled over $2.7 billion in the second quarter of 2008, 52% of
their total revenue (Google, 2008).

18
Google’s diversification coupled with its ongoing promise to deliver on its strategy has been the key
to its success. Google remains the top brand image in the market.

LEADERSHIP & CULTURE

STRUCTURE

Google follows a fairly regular functional structure with management positions specialized by value
chain activity. As a globally diversified company. These positions are further divided and grouped
into regions of interest that aid the company in managing the breadth of its operations. As Figure 11
shows, within each top-level activity, there is a multidivisional structure where small business units
are divided on the basis of geography or product market. This hybrid form of functional and
multidivisional structure works well for Google. It ensures the centralized planning a large
company needs while giving the small business units the flexibility to innovate like a small start-up
company.

Figure 11. Corporate Structure (Google, 2008)

Board of
Directors

Executive
Management
Group

Engineering Products Sales Legal Finance

Chief
Product
Information Americas General Counsel Treasurer
Management
Officer

Europe, Middle Corporate

Engineering User Experience Real Estate
East, & Africa Development

New Business Financial

Research Marketing Asia Pacific
Development Planning

CULTURE

19
Google’s informal corporate slogan is, “Don’t be evil.” The motto was first suggested by Paul
Buchheit, the creator of Gmail, who said he "wanted something that, once you put it in there, would
be hard to take out." He also added that the slogan was "a bit of a jab at a lot of the other companies,
especially our competitors, who at the time, in our opinion, were kind of exploiting the users to
some extent." The name of the company is a play on the mathematical term “Googol”, 1 followed by
100 zeros. It represents the company’s unique vision to organize more information and make more
money than customers and investors thought was possible. Eric Schmidt, Google’s CEO, is fond of
saying that according to their math, it will take 300 years to accomplish their goal (Mills, Google
Reveals its 300-year Plan, 2005). These quirky things are part of what sets Google apart from the
rest of corporate America. Even their IPO was unique – they use a Dutch auction in which the
market determined the initial stock price to prevent insiders and institutions from quickly selling
for a profit (Salkever, 2004).

EMPLOYEE PERKS

Google is often lauded for the way the company treats its employees. Fortune magazine ranked
Google at the top of its lit of the best companies to work for in 2007 and 2008 (Fortune,
2008).Perhaps that’s because Google’s corporate vision includes such axioms as, “You can be
serious without a suit.” (Google, 2008)

"The goal is to strip away everything that gets in our employees' way. We provide a standard
package of fringe benefits, but on top of that are first-class dining facilities, gyms, laundry
rooms, massage rooms, haircuts, carwashes, dry cleaning, commuting buses - just about
anything a hardworking employee might want. Let's face it: programmers want to program,
they don't want to do their laundry. So we make it easy for them to do both." -Eric Schmidt,
CEO
(Google, 2008)

TRANSPORTATION
Around the office Google’s employees get around on Segway and Razor scooters, and recently,
custom bicycles. But for the longer morning commute from home, they offer free bus rides to the
main Mountain View office. ''We are basically running a small municipal transit agency,'' said
Google's director of security and safety, Marty Lev (Helft, 2007). The busses feature bike racks and
leather seats, internet access, and allow pets onboard. For nearly a quarter of Google’s home office
staff, this transportation keeps them from having to spend hours in the Silicon Valley traffic.
FOOD
Google hired their first chef in November 1999 when Charlie Ayers, ex-chef for the Grateful Dead,
won a cook-off judged by the company's 40 employees. Ever since then “an unending supply of
wholesome, free food” (Dudley, 2007) has been the trademark bonus of the Google corporate
environment. There’s a rule that workers can never be more than 100 feet away from food, and the
elaborate snack stations scattered throughout the office halls prove it has been carried out.

20
 THE 70/20/10 RULE
Figure 12. Employee Time at Google
Google allows employees to
spend 70 percent of their 10%
time on the core business,
20 percent on related 20%
projects, and 10 percent on
unrelated new businesses.
This rule is so important 70%
that Google has people on
Core Business
staff to manage the
70/20/10 rule. The Related Projects
engineering and design
New Ideas
staff make use of the “free
time” to persue new products and technologies, but even the top-level managers adhere to the rule.
According to Eric Schmidt, they spend 70% of time on search and advertising, 20% on adjacent
businesses like Google News and Google Earth, and 10% on new things like the free wireless
initiative (Battelle, 2005). The 20% rule has a good return on investment since about half of
Google’s new product launches occur as a result of that “free” time, according to Vice President of
Search Products & User Experience, Marissa Mayer (Eckoff, 2009).

LEADERSHIP

The culture that Larry Page and Sergey Brin started as the founders largely influences the
leadership within the company. In 2001, they hired Eric Schmidt, who had multiple degrees in
engineering, served as CTO of Sun Microsystems, and was previously CEO of Novell. According to
Page, this unusual combination of technical and business backgrounds was key to Schmidt’s success
at Google (Google Inc., 2004). As the new CEO, Schmidt’s roles included providing business
supervision as well as "building the corporate infrastructure needed to maintain Google's rapid
growth as a company" (Google, 2008). Page, Brin, and Schmidt run the company as a triumvirate
because they believe that the “shared judgments and extra energy available from all three of us has
significantly benefited Google” (Google Inc., 2004). The three meet daily in order to update each
other on the business and brainstorm about the immediate issues (Google Inc., 2004). Google’s
annual reports, other SEC filings, and videos are often very personal; and top-level management
communicates in the first person to connect with investors.

Google also employs managers in unique positions that other companies may not have known they
were missing. Google hired a Chief Culture Officer, Stacy Savides Sullivan, in 2006 to help maintain
their characteristic start-up atmosphere (Mills, Meet Google's Culture Czar, 2007). They also have a
Chief Internet Evangelist and a Distinguished Entrepreneur on staff to help identify and enable new
technologies. These managers ensure Google stays innovative.

Google’s Leadership Development and Compensation Committee keep the compensation of

managers in check and broadly work to entice and retain good employees (Google, 2008).However,
right now the top management has already taken the proactive step and each of the three take a $1
annual salary (La Monica, 2006). They feel that the salary sends a positive message to both
employees and investors that their interests very much the success of the company and the long-
term stock performance. However, they are certainly not going without; Brin and Page were tied for

21
the 5th richest people in the United States in 2007, each with a net worth of $18.5 billion (Forbes,
2007).

PROBLEM IDENTIFICATION AND RECOMMENDATIONS

Google’s implementation of its corporate vision as been wildly successful so far. The company has
managed to keep a very distinct culture intact throughout its growth over the past 10 years. Going
forward, Google will need to constantly keep checking itself to ensure the culture remains. In a
recent article by the Wall Street Journal, some Google managers are quoted as saying they are
revaluating the employee perks, 20% time, and infrastructure development due to lower revenue
projections in light of the current recession (Morrison, 2008).

While it is important to control spending, these investments have historically produced great
returns and have fueled the company’s innovation and speedy new product launches (despite an
appearance excess). If Google can figure out how to weather the negative economic environments
while maintaining its fun, productive atmosphere, then the company’s success is likely to continue…
perhaps even long enough to realize full 300-year plan.

Google was criticized in its early years for paying its employees below industry averages, which was
seemingly very bad given the high standard of living in the Silicon Valley area. However the
company did award most of its employees with equity in the company that grew substantially after
the company’s IPO. In addition, the company appears to have since rectified the low wage situation
because according a recent news article, Google’s engineers now make an average of $112,573 plus
stock options -- by contrast, Apple’s engineers make an average of $97,840 (Truta, 2008).

As Google grows in size, another challenge the company faces is how to retain their fun image.
Microsoft received a lot of bad press for their monopolistic actions such as bundling software in the
Windows operating system like the internet browser and media player. Even Apple, with the next
largest market share, has been criticized for its tight control over its music distribution system and
private APIs in its software. As Google moves further ahead with its cloud computing and smart
phone platforms it will increasingly run into the same sort of backlash for keeping software
proprietary. Proprietary products have historically worked well for companies (just look at the
multitude of cell phone adapters in the market) but in order to keep its image, Google’s
management will have to work hard to keep their open culture do their best to not “be evil” like the
other large companies.

Google management’s can achieve their goals and keep all stakeholders (developers, customers,
and investors) happy through the continued use of frank and consistent communication. Figure 13
shows how employees at every level of the company can manage the company’s image in the eyes
of the stakeholders.

22
 Open Source Software Team Blogs & Videos Communication
Chrome browser Gmail Reports
Android operating system Google Docs Speeches
Python programming lang. Google Privacy Letters

Figure 13. Keeping Stakeholders

CONCLUSION

Google’s success is clearly attributable to how it treats the people who have a stake in the company.
Google’s founders started the company with a unique vision and the implementation of that vision
has been very successful. The degree to which the company succeeds in the future will largely
depend on how it leverages its experience while staying true to that vision.

23
 APPENDIX A

RATIO ANALYSIS
Google Current Year Prior Year 3 Years 4 Years 5 Years
$ Percent $ Percent $ $ $
Income Statement
Revenue 16,594 100.0% 10,605 100.0% 6,139 3,189 1,466
Cost of Goods Sold 6,649 40.1% 4,225 39.8%
Interest Expense 1 0.0% 0 0.0%
Tax Expense 1,470 8.9% 934 8.8%
Income from Cont Operations 5,084 30.6% 3,550 33.5% 2,017 640 343
Net Income 4,204 25.3% 3,077 29.0%
Balance Sheet
Cash 6,082 24.0% 3,545 19.2%
Short Term Investments 8,137 32.1% 7,699 41.7%
Accounts Receivable 2,308 9.1% 1,322 7.2% 688
Inventory 0.0% 0.0%
Current Assets 17,289 68.2% 13,040 70.6%
Long Term Investments 1,060 4.2% 1,032 5.6%
Net Fixed Assets 4,039 15.9% 2,395 13.0%
Other Assets 202 0.8% 115 0.6%
Total Assets 25,336 100.0% 18,473 100.0% 10,272
Current Liabilities 2,036 8.0% 1,305 7.1%
Total Liabilities 2,646 10.4% 1,434 7.8%
Stockholders' Equity 25,336 100.0% 18,473 100.0%
Cash Flow
Cash Flow from Operations 5,775 3,581 2,459
Dividends Paid
Interest Paid 1,279 4,996
Per Share
Market Price at Year End 691.48 460.48
Earnings Per Share - Basic 13.53 10.21
RATIO ANALYSIS
Growth Ratios
Sales Growth 56.5% 72.8%
Income Growth 43.2% 76.0%
Asset Growth 37.1% 79.8%
Activity Ratios
Receivable Turnover 9.1 10.6
Fixed Asset Turnover 4.1 4.4
Profit Ratios
Profit Margin 30.6% 33.5%
Return on Assets 23.2% 24.7%
Return on Equity 23.2% 38.4%
Price Earnings Ratio 51.1 45.1
Liquidity Ratios
Current Ratio 8.49 10.00
Quick Ratio 8.12 9.63
Solvency Ratios
Debt to Total Assets 0.10 0.08
Times Interest Earned 5463.2 14946.3
(Accrual) 5 3
Times Interest Earned (Cash) 5.52 1.72

24
 APPENDIX B

PRIMARY COMPETITOR ANALYSIS (Yahoo!)

Google Yahoo!
Income Statement
Revenue 16,594 6,969
Cost of Goods Sold 6,649 2,839
Interest Expense 1
Tax Expense 1,470 337
Income from Cont Op 5,084 695
Net Income 4,204 660
Balance Sheet
Cash 6,082 1,514
Short Term Investments 8,137 488
Accounts Receivable 2,308 1,056
Current Assets 17,289 3,238
Long Term Investments 1,060 2,561
Net Fixed Assets 4,039 1,212
Other Assets 202 606
Total Assets 25,336 12,230
Current Liabilities 2,036 2,300
Total Liabilities 2,646 2,697
Stockholders' Equity 25,336 12,230
Prior Year Accounts Receivable 1,322 931
Prior Year Assets 18,473 11,514
Prior Year Equity 18,473 11,514
Cash Flow
Cash Flow from Operations 5,775 1,919
RATIO ANALYSIS
Income Statement Common Size Data
Gross Profit/Sales 59.9% 59.3%
Cost of Goods Sold 40.1% 40.7%
Income from Continuing Operations/Sales 30.6% 10.0%
Balance Sheet Common-Size Data
Current Assets/Total Assets 68.2% 26.5%
Current Liabilities/Total Assets 8.0% 18.8%
Liabilities/Total Assets 10.4% 22.1%
Equity/Total Assets 100.0% 100.0%
Profit Ratios
Profit Margin 30.6% 10.0%
Return on Assets 23.2% 5.9%
Return on Equity 23.2% 5.9%
Liquidity Ratios
Current Ratio 8.49 1.41
Quick Ratio 8.12 1.33
Solvency Ratios
Liabilities/Total Assets 0.10 0.22
Times Interest Earned (Accrual) 5463.25
Operational Ratios
Receivable Turnover 9.1 7.0

25
 APPENDIX C

TREND ANALYSIS
5 Years Ago 4 Years Ago 3 Years Ago Prior Year Current Year
Revenue $1,466 $3,189 $6,139 $10,605 $16,594
Income - Continuing Operations $343 $640 $2,017 $3,550 $5,084
Cash Flow from Operations $2,459 $3,581 $5,775
Total Assets $10,272 $18,473 $25,336

REVENUE TREND NET INCOME TREND

$6,000
$20,000
$4,000
$10,000 $2,000
$0
$0
5 Years 4 Years 3 Years Prior Current
5 Years 4 Years 3 Years Prior Current Ago Ago Ago Year Year
Ago Ago Ago Year Year

INCOME TO CASH FLOW COMPARISON

$7,000 Income -
$6,000 Continuing
Operations
$5,000
$4,000
$3,000
$2,000 Cash Flow
from
$1,000 Operations
$0
3 Years Ago Prior Year Current Year

ASSET CHANGES

$30,000
$25,000
$20,000
$15,000
$10,000 Total Assets
$5,000
$0
3 Years Ago Prior Year Current Year

26
 APPENDIX D

QUARTERLY DATA
1st Q 2nd Q 3rd Q 4th Q Annual
Current Year Revenue 3,664 3,872 4,231 4,827 16,594
Last Year Revenue 2,254 2,456 2,690 3,206 10,605
Current Year Income 1,352 1,245 1,473 1,608 5,679
Last Year Income 845 921 1,046 1,185 3,997
CURRENT YEAR QUARTERLY STOCK PRICES
1st Q 2nd Q 3rd Q 4th Q
High Price $458.16 $522.70 $567.27 $691.48
Low Price $390.00 $419.33 $401.90 $460.48

QUARTERLY REVENUE
6,000
5,000
4,000
3,000 Current Year
Revenue
2,000
1,000
0 Last Year
Revenue
1st Q 2nd Q 3rd Q 4th Q

QUARTERLY INCOME
2,000

1,500

1,000
Current Year Income
500

0
1st Q 2nd Q 3rd Q 4th Q Last Year Income

QUARTERLY STOCK
HIGHS AND LOWS
$800.00

$600.00

$400.00 High Price

$200.00 Low Price

$0.00
1st Q 2nd Q 3rd Q 4th Q

27
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