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Essay: Key challenges & threats to Google’s sustainable competitive advantage

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  • Published: 8 October 2022*
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Introduction

Google, its products, and its expanding services have become household names; as the second most valuable firm in the world valued at approximately $528 billion (Cusumano, 2017, p. 22) it is no surprise that they monopolise the majority of Internet general services. However, as the market becomes increasingly crowded with companies threatening Google’s technological domination, the key challenges and threats to Google’s sustainable competitive advantage must be examined and counteracted. In this position paper, Google’s performance will be examined using the VRIO framework to justify what keeps it competitive while highlighting the risks and challenges to its industry lead. From the analysis, a proposed strategy will then outline the recommendation of Google to invest primarily in AI development in order to leapfrog in the areas of technology and encourage an inseparability between Google and its users.

Google’s attributes and advantages

Since its conception, Google has valued simplicity, usefulness and consistency in its services and products (Choi, Kim & Yoon, 2014, p. 707). A way of viewing Google’s attributes and functions is through the VRIO framework, where its success is through fulfilling the criteria for a competitive sustainable advantage. The VRIO framework is a four component tool to highlight the resources and capabilities that a company possesses and must protect to give a long-term competitive advantage (Clearpoint strategy), comprising of value, rarity, imitability and organisation. Failure to meet a criterion will challenge Google’s superiority in the technology market, and Google must frequently revisit the framework to ensure that their strengths are not diminished by the emergence of competitors’ products and services.

Google’s strengths and opportunities will firstly be examined to understand where its consequential challenges lie. Primarily, Google owns a major share of the advertisement market, with their network reaching 90% of internet users with advertisements consequently placed on each page (Rothaermel, 2017, p. 7). Advertisements are Google’s main source of revenue, and thus maximum distribution of Google products and Google Network members’ sites onto other platforms such as Apple devices is integral to reap the greatest revenue through both cost-per-click and cost-per-impression avenues (Rothaermel, 2017, p. 7).The sheer coverage that Google has online is instrumental in maintaining its inimitability, and Google constantly upgrades its network infrastructure to continue to deliver the fastest services. Newer competitors simply cannot compete with the physical and virtual size of Google’s processing capabilities, and the rarity of Google’s subsea cable projects to increase computing technologies advances will promote their position as leaders in technology (CB Insights, 2019).

Secondly, Google’s substantial investment in research and development (R&D) opportunities is an amalgamation of the value and organisation attributes of the VRIO framework, where they have invested 15% of total sales into R&D to provide products that meet user needs (CB Insights, p.2). When Google reorganised into Alphabet Inc, it gave structure to the organisation through separating operations into core and non-core divisions, which permitted Google to trial ‘moonshots’, that is, R&D experiments that “promise revolutionary innovations” (Cusumano, 2017, p. 24) through its Other Bets subsidiaries division. While it has experienced some criticism from stakeholders as a sizeable percentage of revenue has hence siphoned away from core and successful Google products, Android was a moonshot back in 2005 and now “leads the industry with over 80% market share” (Cusumano, 2017, p. 22), which proves that Google’s R&D work has the potential to evolve into consistent increased revenue. Other Bets investments have the opportunity to contribute to Google’s competitive advantage if the right project is funded; however, it runs the risk that there will be no payoff, only wasted profit.

Key challenges

The greatest threat Google has to its sustainable competitive advantage is imitability; while Google has been the leader in advertising for decades, competitors such as Facebook threaten its market share. Recently, Facebook has centered their strategy around delivering the quality of ads, that is, user-focused, rather than the quantity of ads, which has subsequently improved their revenue (Rothaermel, 2017, p. 9). While Google could traditionally generate revenue through mass advertising and cost-per-impression profit, the modern user has countered advertisements with ad blocking browser extensions, with an annual increase of 41% turning to blockers due to frustration with the volume of advertisements (Rothaermel, 2017, p. 11). As the majority of Google’s functions are directly dependent on advertising revenue, including the aforementioned Other Bets, Google cannot develop and match competitors’ technologies if they lose their advertising monopoly.

Google has also failed to counter the change in user prioritisation from desktop to mobile, losing 2% market share in online advertising due to the decreasing relevance of text-based advertisements ((Rothaermel, 2017, p. 10). With over half of Google’s 100 billion monthly searches in 2015 from mobile devices, and more users choosing to search via voice enabled capacities, the effectiveness of traditional advertisements has dwindled to the point that more competitors are capitalising on the new dynamics of the advertising platform, such as Facebook, who has generated “75% of all revenue from its mobile ad business” (Rothaermel, 2017, p. 9). This was evidenced when Google rushed into resolving the advertising demographic gap by releasing an audio-based advertisement to target users, which was met with complaints and a swift removal (Rothaermel, 2017, p. 9). Google appears to have been complacent about their historical monopoly in the advertising field, failing to prepare for the change in operating environment, and are blindsided when competitors delivered relevant and targeted advertising that they could not counter. Google must monitor modern users’ online preferences and behaviours to prevent disconnect and strategic disadvantage.

Future recommendation

Google can reinstate its sustainable competitive advantage if it uses its R&D facilities to be at the forefront of augmented intelligence (AI) technologies, releasing AI capabilities that enhance current existing Google products. This recommendation has the ability to counteract Google’s challenges while building on their strengths if done appropriately. Firstly, Google has already understood the importance of integrating a virtual assistant into its products and services; an increase in AI technology will improve its “foothold in the search and advertising world” (CB Insights, 2019, p.11) through introducing an unparalleled user-orientated function. While Google struggled with the increased prioritisation of voice-assisted search and mobile-based functions over desktop services, if they release AI technology to “build each user their own individual Google” (McCracken, 2016), that is, make Google and the user inseparable from each other in the smart home world, not only will revenue increase due to dependency on Google and its products, but Google will be seen as the leader in AI technology rather than an imitator. Google already has a central focus on developing machine learning capabilities; it has acquired AI startups DeepMind, Halli Labs and Banter and has launched two designated AI funds: Gradient Ventures and Google Assistant Investment Program (CB Insights, 2019). Google should continue to focus on deep learning and AI functions in order to bolster its eventual release of AI smart home technology with the best and the most relevant products for the everyday user.

Moreover, Google’s investment in AI will increase its ability to manage processing capabilities and information organisation; by incorporating deep learning into its search and Google Assistant functions, AI will provide Google an unparalleled advantage in speed and relevance which will filter down to Internet users’ satisfaction and continued use with Google and its products. Although Google has fallen behind tech giants such as Apple and Amazon by being too late to the smartphone and smart speaker markets (McCracken, 2016), with a successful AI campaign Google does not need to match their products due to possessing a niche function that other companies fail to have the funding or research background to match, at least in the short-term. Google should not be reactive to the tech market, but shape user’s desires towards their tech capabilities so that they become the preference, forcing Apple and Amazon to change their strategies to aspire towards Google’s features.

Naturally, the rollout of AI comes with a number of risks, the primary two being releasing AI integration at the wrong time and releasing products that are irrelevant to users. Google is experienced in releasing products too late as seen by the Google Pixel smartphone, Allo messaging app, Google + and Google Home voice assistant (Rothaermel, 2017). On the other hand, Google has released products in a market with no connected tangible user needs, such as Google Glass, where users considered Glass as a novelty rather than fulfilling a smart home requirement. Noting that Amazon, Apple, Facebook and Microsoft are all investing in AI initiatives (McCracken, 2016), Google is currently under pressure to be the first to release a complete AI integration suite of products. While Google has invested majorly in AI research and development and can be confident that their AI technologies can surpass their competitors in terms of understanding of multimedia and information through multi billion Google searches, they must also deliver a comprehensive advertising campaign to ensure that users believe that AI will complement their lives, rather than being an expensive luxury addition.

Conclusion

All in all, Google has demonstrated a clear sustainable competitive advantage for most of the company’s life, showing that they surpass their competitors in value, rarity, inimitability and organisation. However, their key challenges have been evident in recent years, where competitors and users have become smarter and desire better user experiences than mass advertising campaigns and desktop restricted functions. Google has been challenged by the change in technological environment and have reacted rather than dominated in the release of new products and advertising campaigns, to the dissatisfaction of Internet users. This position paper therefore recommends that Google must be the pioneer in AI technology to complement their current core products, particularly Google Search and Google Assistant, in order to promote the inseparability of the Internet user with Google and its products, while differentiating Google functions from that of its competitors. As CEO Sundar Pichai has emphasised, Google should not consider how to compete with tech giants themselves, but how to be better for the smart product user (McCracken, 2016). AI, if released at the right time and in the right way, has great potential to permanently change the smart home market, boosting revenue and conquering the modern tech environment.

Bibliography

  • CB Insights. (2019). Google Strategy Teardown. CB Insights. Retrieved from https://www.cbinsights.com/research/report/google-strategy-teardown/#ai
  • Choi, J., Kim, B., & Yoon, S. (2014). UX and Strategic Management: A Case Study of Smartphone (Apple vs. Samsung) and Search Engine (Google vs. Naver) Industry. Lecture Notes In Computer Science, 703-710. doi: 10.1007/978-3-319-07293-7_68
  • Cusumano, M. (2017). Is Google’s alphabet a good bet?. Communications Of The ACM, 60(1), 22-25. doi: 10.1145/3018990
  • McCracken, H. (2016). At Sundar Pichai’s Google, AI Is Everything—And Everywhere. Retrieved 21 September 2019, from https://www.fastcompany.com/3065420/at-sundar-pichais-google-ai-is-everything-and-everywhe
  • Rothaermel, F.R. (2017). Alphabet’s Google. NYC, United States: McGraw Hill Education.

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