1. Evaluate Google using the competitive forces and value chain models
Figure 1: Porter's Five Forces
Bargaining power of supplier
Supplier's trust Google's advertising system as reliable source of income. Besides that, Google is also not internationally dominant. Suppliers are different from many different sectors. As the competition level is too low for it right now so the suppliers bargaining power is less, it has to look forward to future where huge search engines can strike the customer base of Google. The number of suppliers are huge in each sector thus it makes Google stand at a stronger position. (Siohong, Sean and June, 2008).
Bargaining power of buyer
In the year 2008, almost 97% of Google's revenue was made by adverting. There are many single account contributing low percentage to net revenue. They realised that selling popular keywords is valued. Besides that, buyers here would be those who are using Google throughout its existence. As there are a lot of search ranking forums where the visitors and users can take part in bargaining so this increases there bargaining power. Low rankings would highly influence the users' choice. Another upcoming issue is that users of the search engines are getting more erudite and thus asking for other value added services also for free. Although competition level is low but quality would certainly take away all the users in a blink of eye. No search tool can be perfect as people's demands change with the changing technology and easy to use tools every day and company who want to pace up with that has to focus on day to day research of customers' needs and demands. Threat of backward integration also makes the system to be more competitive and to increase the power of buyers.
Threat of new entrants
Current big players exhibits a high technology and a lot of know-how, so that new entrant must provide better and quicker search results then others competitors. New entrant also does not have data on search history of users. Threats of new market entrants is relatively low. No perfect search engine exists till yet and thus it always remains a threat that any time a new entrant will enter the market and will wipe the previous search engines like Google did. And as almost 40% of the company revenue generation is through advertising which comes from the search engine, so this threat has to be taken very serious and Google has to work on the principles of continuous improvement.
Few major actors which are in the favour of Google are that they are being highly embedded in a user's mind that is very difficult to take over such customer loyalty. Switching costs are also hardware related which again needs huge accuracy standards thus would require high level of efficiency in the system.
Threat of substitute Products
There is now other suitable substitute for search engines like Yahoo and Microsoft MSN. Organizing information and conducting searches like Google do is for near future business with no threats. Beside that number of Internet users worldwide is rapidly increasing. On the other side internet advertising is second best form of advertising (just behind newspapers). If you add to this a search-based ads, then you have a winning solution.
Intensity of rivalry within the industry
All competitors including Yahoo and Microsoft have similar services and products. Competition is based on non-price dimension like marketing, brand, search technology. Because this is relatively new business there are good growth opportunities also for economics of scale in advertising. As a strongest competitive force, the competitive rivalry, where the weakest is bargaining power of the buyers. Market is driven by innovations. As already stated before, industry has high overall attractiveness.
Having a brand identity is also equally as important when it comes to rivalry
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 5. In this manner, Google ensures that the users who are directed to a partner site are more likely to purchase a product there.
Google's primary activities in its value chain are heavily dependent on the support activities of administration and human resources (Figure 4). 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 6.
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 world1 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.
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 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.
2. What are Google's competitive advantage? How does it provide value to its users?
Google has sustainable competitive advantages because the remarkable scores accrued in measures of value, rarity, imitability, and substitutability.
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.
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.
Google's search offerings are hard to find because of the relevancy of the results. Microsoft and Yahoo, which are 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”. This rare service is testimony to their charge to never “compromise user focus for short-term economic gain”.
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. Their search engine can effectively learn more quickly than competitors' products since that the market share of Google is wide. 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.
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.
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.
3. What problems and challenges does Google face in this case? What management, organization, and technology factors are responsible for these problems and challenges?
Google has been widely criticized for its vague response to the problem of click fraud. Google must also be concerned with legitimate offensives from its rivals. One competitor is Microsoft, which has a history of diminishing or destroying its competitors by exploiting the fact that its Microsoft Windows operating system can be found on 95 percent of the world's personal computers. They also face security issues with their Operating System Android. According to Smith (2015), Google has some issues as they enter the mobile platform business with an open- to- all Android without enuring on security control.
Next, two other areas where Microsoft can get ahead of Google are context-aware searches and “deep Web” searches. By personalizing search technology, a search engine can return results that accurately match the context of the user's query, producing more relevant search outcomes.
The technical problem Google was having is that they were considered a search technology company. However they are now a lot more competitive with Microsoft because they have become a software company and can now infringing on the markets that Microsoft dominated.
4. Does Google's business strategy effectively address these challenges? Explain your answer.
Their business strategy addresses these challenges. In 2006, Google introduced Google Spreadsheets, a web based spreadsheet application, and also acquired the company “Writely”, which offers a Web-based word processor.
In addition to that, Google is constantly looking for ways to grow and get into competition with its competitors. They have created many applications that would make someone want to do everything through Google other than any other program. You can use excel, pictures, email, weather updates, news, and many other applications that are considered useful. Lastly, Google is taking advantage of the social networking craze by introducing Google+ as their social networking platform. The Android operating system also serves as one of the biggest threat to Apple's iOS to be the number one platform for smartphone users.
5. How successful do you think Google will be in the future?
According to Laudon (2007), Google is one of the “most prominent technology companies to rise in the past several decades” .Google has dominated the internet with its sole search engine company and by offering the fastest search speeds and web based products. Rayport states that Google “captures 75% of search-ad revenues and over 90% of search-ad profits” (Rayport, 2008).
As the development of the internet is continually increasing, Google has searched other possible areas to build revenue and continue its dominance within the internet. The following are areas where Google are concentrating on developing further to help build their future success.
• Cloud computing - involves computing tasks to be “performed via the web, on computers sitting in data centres, rather than at your desktop” (Laudon, 2007). Advantages would mean that users were not tied to a particular machine and Google would have responsibility over the maintenance.
• Automated Language Translation – this is aimed to “break the language barrier by finding anything in any language” (Tech Dreams, 2007)
Google Book Search – Google is working with Libraries and Publishers to further develop its index of online books.
Images and Video – Video files have already commenced as a part of search results. Google aims to enhance this technology to search “videos and images as easy as we search text content” (Tech Dreams, 2007).
Google 411 – Google introduced a free phone service in the US. This phone service allows users to perform voice search “with the help of an Interactive Voice Response system” (Tec Dreams, 2007).
Maps and Local Search – Google maps and local search are now widely used. Google aims to integrate upgraded street views in its mapping.
a.) Define the three common business forms.
1. Sole Proprietorship
A sole proprietorship is a business that is only owned by only a single entity. It is easy to set-up and operates in a low cost among all forms of ownership.
The owner faces unlimited liability; meaning the creditors of the business may go after the personal assets of the owner if the business cannot pay them.
The sole proprietorship form is usually adopted by small business entities.
A partnership is a business that is owned by 2 or more persons who contribute resources into the entity. The partners divide the profits of the business among themselves.
In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go after the personal assets of the limited partners.
A corporation is a business organization that has a separate legal personality from its owners. Ownership in a stock corporation is represented by shares of stock.
The owners (known as ‘stockholders') enjoy limited liabilities but have very little involvement in the company's operations. The board of directors, an elected group from the stockholders, controls the activities of the corporation.
b.) List and describe the seven departments commonly found in most organizations.
1. Marketing department: Responsible for identifying and at the same time, satisfying customers' needs. They are also responsible on managing on research on what customers want and how the organization can satisfy these wants.
2. Human Resources: they are responsible for recruiting and selecting the right people to the right job. They are also responsible for training and developing employees to ensure that they can perform their tasks effectively and productively.
3. Accounting and Finance: This department is solely responsible for record keeping involving the monetary flows in and out of the company. Besides that, they will also prepare financial statements such as income statement and balance sheet to external parties such as shareholders.
4. Information Technology function- The IT department makes sure that the environment is secure, stable and up-to-date. This is extremely essential especially if you want your computers to be safe from threats. There can be times when you may have some technical issue with the software. The IT department is responsible for having these issues resolved. There can be times when the error is extremely technical and only a IT professional can fix it. Besides that, the Information technology function also deal with the database management to be available for the company regardless of their location.
5. Research and development function- They are also commonly known as R&D which specialises in developing new products or processes and improving existing new products or services
6. Purchasing function- concerned with acquiring goods and services used by the organization such as components and raw materials for manufacturing and production of the equipment.
7. Production function- undertakes certain activities necessary to provide organizations products or services such as planning and scheduling, control
c.) Describe a transaction and importance to accounting department.
An accounting transaction is a business event having a monetary impact on financial statements of a business. The accounting and finance department has to record the inflows and outflows of money through the means of using journal entries to record in the accounting system. The journal entries are also to ensure that debit amount is equivalent to credit amount. The accounting transactions recorded by the accounting department records or dictates the accounting equation which states that the amount of assets acquired must be equivalent to liabilities plus stockholders equity. With that, the procedures in the accounting cycle can usually dictate which individuals are responsible for financial or accounting information and prepare the financial reports and statements. These reports will then provide business owners with information regarding how profitable and efficiently the business operates.
d.) Identify the four primary financial statements used by most organizations.
1. Income statement- Presents the revenues, expenses, and profits/losses generated during the reporting period. This is usually considered the most important of the financial statements, since it presents the operational results of an entity.
2. Balance sheet- Presents the assets, liabilities, and equity of the entity as of the reporting date. Thus, the information presented is as of a specific point in time. The report format is structured so that the total of all assets equals the total of all liabilities and equity (known as the accounting equation). This is typically considered the second most important financial statement, since it provides information about the liquidity and capitalization of an organization.
3. Statement of cash flows. Presents the cash inflows and outflows that occurred during the reporting period. This can provide a useful comparison to the income statement, especially when the amount of profit or loss reported does not reflect the cash flows experienced by the business. This statement may be presented when issuing financial statements to outside parties.
4. Statement of retained earnings. Presents changes in equity during the reporting period. The report format varies, but can include the sale or repurchase of stock, dividend payments, and changes caused by reported profits or losses. This is the least used of the financial statements, and is commonly only included in the audited financial statement package.
e.) Define the relationship between sales and marketing, along with a brief discussion of the marketing mix.
The job of sales department is to sell what's in stock as the company has specific products or services and develop relationship with customers or partners. The perspective of Sales is from inside the company out towards the customers and the results are focused based on short term.
Marketing is to understand the marketplace from the perspective of the customer looking back towards the company and guiding the company in long term orientation plans. Besides that, they also convert the market understanding into strategies to attract the market.
Product – The first thing you need, if you want to start a business, is a product. Therefore Product is also the first variable in the marketing mix. Product decisions are the first decisions you need to take before making any marketing plan. A product can be divided into three parts. The core product, the augmented product and the tertiary product.
Price- Pricing – Pricing of a product depends on a lot of different variables and hence it is constantly updated. Major consideration in pricing is the costing of the product, the advertising and marketing expenses, any price fluctuations in the market, distribution costs. Many of these factors can change separately. Thus, the pricing has to be such that it can bear the brunt of changes for a certain period of time. However, if all these variables change, then the pricing of a product has to be increased and decreased accordingly.
Place-Place refers to the distribution channel of a product. If a product is a consumer product, it needs to be available as far and wide as possible. On the other hand, if the product is a Premium consumer product, it will be available only in select stores. Similarly, if the product is a business product, you need a team who interacts with businesses and makes the product available to them. Thus the place where the product is distributed, depends on the product and pricing decisions, as well as any STP decisions taken by a firm.
Distribution has a huge effect on the profitability of a product. Consider a FMCG (Fast Moving Consumer Goods) company which has national distribution for its product. An increase in petrol rates by 10 dollars will in fact bring about drastic changes in the profitability of the company. Thus supply chain and logistics decisions are considered as very important costing decisions of the firm. The firm needs to have a full proof logistics and supply chain plan for its distribution.
Promotion- Promotions in the marketing mix includes the complete integrated marketing communications which in turn includes ATL and BTL advertising as well as sales promotions. Promotions are dependent a lot on the product and pricing decision. What is the budget for marketing and advertising? What stage is the product in? If the product is completely new in the market, it needs brand or product awareness promotions, whereas if the product is already existing then it will need brand recall promotions to reach out to the customers.
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