Sample Business Case Analysis on Google Company

Case Analysis: Google Company

Introduction

Google Company focuses mostly on providing information to the members of public at no cost. The concept is appealing since people do not pay for the information the company’s search engine provides to them when they search for this information online. However, in the process of doing this the company allows advertisers to promote their products on a cost-per-click (CPC) as well as cost-per-impression (CPI) basis. Most of the company’s advertisements are displayed next to search engine’s results as sponsored links, and companies pay for them whenever people click these links or view advertisements as the case may be, advertisers pay for them.

Besides doing this, the company also allows companies to install its search engine appliances into their intranet for a fee. Although this is not a very popular practice, it makes a lot of money for the company. Back in 2012, the company made $2.4 billion from this business venture. As a result, it is a profitable venture even if it is not popular among majority of the people. About three years ago, the company acquired Motorola mobility division as a way of reaching mobile users. The company ventured into this business after realizing that it had dominated online advertising. Although the move was not welcome by some of its competitors such as Microsoft and Apple, it has been a significant one in the company’s growth.

In recent years, the company has been venturing into cloud computing with an intention of transferring presentation software, word processing software as well as spreadsheets online. The move has awakened Microsoft from slumber and the two companies have become arch-rivals in both online advertising and technology industry. Before venturing into cloud computing, the company launched Google TV, a social networking site known as Google plus and Google wearable glass. Other platforms include YouTube and Android-powered wristwatch. All these platforms are aimed at ensuring that the company reaches as many people as possible.

The company’s mission is to organize the world’s information and make it universally accessible and useful to all people. With such a mission, the company focuses its attention on every upcoming technology. Although this is a good strategic move, it is a challenging one given that the company is competing with established companies. This notwithstanding, the company is also an established one meaning that it is capable of competing with its competitors effectively. In terms of scope of operation, the company can be said to be engaging in every type of technology that can enable it to maintain its competitiveness in internet advertising. Accordingly, it would not be possible to pinpoint one area the company focuses its attention on given that technology industry is ever growing and ever changing. However, the company’s main market remains to be companies whose information can be digitized and provided to the members of the public in digital form.

Strategic issue

In relation to the above overview, this part of the paper will zero in on what the company needs to do to remain competitive in technology industry. The focus will be on what the company needs to address so that it can outsmart its competitors in the industry. Otherwise, it will not be able to compete effectively with its competitors.

The company focuses much of its attention on the latest technologies with an aim of ensuring that internet advertising remains competitive. This means that in line with its mission, the company wants to digitize almost every bit of information so that it can attract advertisers to online advertising. Although this is a good idea, it is a challenging one because the company should understand the right technologies that will not frustrate its business ventures as some of its business ventures have done in the past. In line with this understanding, the company needs to acquire the right technologies that will make it competitive in technology industry. The company had previously launched some technologies such as Orkut social networking site as well as Knol open-source encyclopedia, and they were not successful. This means that even if the company has been successful in the past, it does not mean that the company cannot fail in some instances. With respect to this understanding, the strategic issue facing the company is that of understanding the right technologies that will not frustrate its business ventures once it focuses on expanding its business venture with those technologies.

External analysis

In contrast to other parts of the paper, this part will evaluate the industry’s situation and external environment. The purpose of external environment will be to evaluate the industry situation with an aim of determining what the firms in the industry should do to counter new entrants and competition among them.

New entrants

The technology industry seems open for companies to enter easily and compete effectively with existing firms. For example, it might appear that any person with an IT background can simply join the industry and start competing with Google Company in online advertising. However, a critical industry analysis shows that one requires a huge capital to compete effectively with already existing firms. Indeed, new entrants should invest in thousand servers if they are to compete with existing firms. Furthermore, they should accumulate many data about users so that they can understand them and consequently compete effectively with the firms that are already in the technology industry. Apart from this, new entrants into the industry should provide better search engines like Google has done over the years if they are to impact the industry. At the same time, those firms should put some few things in order so that they can compete effectively in the international market. In relation to this fact, threat of new entrants is relatively moderate because of the physical barriers of entry. This means that existing firms do not have to worry much about new entrants because the industry favors them.

In fact, given that Google Company is a well-established company in online advertising, it is highly unlikely that new entrants into this industry would influence the operations of the company in any way. Right now, the company has been in this business for almost twenty years, and it has been able to generate huge income from its business ventures. This means that new entrants into the industry would have to establish themselves before they compete effectively with Google Company and other companies in the industry. Given that the company’s major rivals have not been able to threaten the company in any way, then it is likely that even new entrants would not threaten the company in any way. This notwithstanding, new entrants are likely to reduce the company’s market share as well as company’s profit if they become established.

Suppliers

Looking at online advertising industry, which Google Company has a big market share; it is evident that suppliers do not play significant role in this industry. If anything, it is highly likely that there is no influence of suppliers in this industry. On the other hand, looking at technology industry, it is evident that suppliers play some role in this industry. However, they do not affect majority of the firms in this industry because these firms do not rely wholly on specific suppliers. Accordingly, even if suppliers would like to assert some pressure on technology industry, they are unable to do so because there are many suppliers. More importantly, the industry does not rely heavily on suppliers. In relation to this fact, the force of suppliers is relatively weak meaning that it does not impact the industry significantly.

Buyer power

In technology industry, the term buyer could be so generalized because anybody using technology qualifies to be a buyer. In search engine business, anybody using the internet is likely to be a buyer because he/she can promote his/her products or even use services provided by companies in this industry. The fact that each one of us who is a target customer for companies engaging in internet advertising has a choice to make regarding the search engine to use in retrieving internet-based information, then we can influence business practices in the industry in one way or the other. By this I mean that the decision that one makes regarding the search engine to use affects online advertising companies in one way or the other. For example, when one chooses to use Google search engine and not Yahoo search engine, the decision affects the pricing of Yahoo search engine.

Yahoo search engine is likely to lower its advertising prices because of low traffic so that it can attract more advertisers. On the other hand, Google Company is likely to hike its advertising prices because of its popularity or even lower its advertising prices to attract more advertisers. Given the high number of online advertising companies in the world today, buyer power force is strong in online advertising because each company wants to attract more advertisers. From another perspective, if internet users choose to use other search engines other than Google search engine, Google Company will be forced to lower its advertising prices because it would consider itself unpopular.

Conversely, if all internet users choose to use Google search engine in their online practices, then Google Company is likely to hike its advertising price because it would consider itself popular. In relation to this fact, the decision of buyers who in this case are online advertisers would be influenced by the number of internet users utilizing a particular search engine. This would in return influence the pricing of advertising services that online advertising companies offer. More importantly, the companies in internet advertising industry have devised a mechanism that allows buyer to determine the price of their advertisements. The mechanism allows buyers to bid on the adverts with the highest bidders enjoying more publicity than the lowest bidders. In this respect, buyers’ power is strong in the industry.

Threat of substitutes

With regard to online advertising, the force of substitute is relatively high because companies can use other modes of advertising to promote their products. Some of these substitutes include print media, radio and television advertisements. Accordingly, when companies are not advertising on these media, they are either advertising online or not advertising at all. This is facilitated by low switching cost as well as availability of substitutes. Low switching cost in this case means that companies and individuals that advertise online can switch easily to other forms of advertising. On the other hand, availability of substitutes means that companies and individuals that advertise online can switch to other forms of advertising easily as well. In relation to this fact, the threat of substitutes is strong because companies and individuals that advertise online can either do it online or use other forms of advertisements. While this is the case, the number of competitors in technology industry is relative high even if some of these competitors are not well-established. This means that online advertising companies such as Microsoft and Google compete for customers even if Google Company appears to dominate the industry.

With regard to online information, there appears to be no direct substitute for this practice because so long as one wants to access information online he/she does not have any other way except using the internet. Accordingly, unless a new method of searching information online is invented, there will be no substitute for this practice. Largely, this is what sustains firms in technology industry because internet users do not have any other way except using one of the firms in the industry. For example, if you want to search for information online, you either use Google search engine or any other search engine. This means that you do not have an alternative means of searching information online even if you have an option of choosing the search engine to use in this mechanism. In simple terms, even if there is no direct threat of substitute for search engines, there is direct substitute for online advertising. Consequently, unless firms in online advertising industry look for ways to attract advertisers to this industry, they will constantly face threat of substitute from traditionally recognized methods of advertising. Google Company appears to counter this threat by developing YouTube-based advertisements.

Rivalry

Technology industry like many other industries has many competitors even if some of these competitors are not well-recognized. For example, companies such as AOL, ask.com and Chitika among others are in online advertising, but very few people know about these companies. This means that for a company like Google to stand out as it has in this industry, it has to do a lot of work. Some of the major competitors in this industry include Google, Yahoo and Microsoft. Indeed, since Google ventured into Smartphone business, Microsoft has equally ventured into online advertising business. Accordingly, there has been intense rivalry among the three major competitors in online advertising.

Yahoo, on one hand, tries its level best to maintain its market share while Microsoft, on the other hand, tries its level best to gain a significant market share. Google Company having gained a significant market share tries to outsmart its competitors by ensuring that its search engine is efficient. In so doing, the company has invested heavily in this industry and would not consider quitting the industry any time. As a result, the company tries to distinguish its services from those of its competitors so that it can attract more internet users and customers. Lately, the major competitors led by Yahoo have been promoting their services, and they have consequently contributed to strong rivalry.

In summary, there is strong rivalry among the major competitors contributed by huge profits the companies make. The threat of substitutes is high even if it does not affect the industry significantly given the focus of online advertising. Buyers’ power has significant effect in the pricing mechanism. Nonetheless, the forces of suppliers and new entrants are relatively low in the industry. Based on these facts, every decision that companies in the industry make is influenced by these forces.

Accordingly, once Google Company ventures into new business areas, it should expect some rivalry from its competitors. At the same time, it should expect buyers to have some influence on its new business. On the other hand, given that the forces in this industry are relatively strong, they reduce the power of the firms in the industry, and to some extent limit their strategic choices. However, they limit new entrants from joining the industry as well as having significant effects on established companies such as Google and Yahoo.

Key success factors

The first key success factor for technology industry lies in creativity and in innovation. The two factors help companies in this industry to acquire expertise in particular areas of interest, and in so doing, enable those companies to maintain their market shares. In this respect, every company in this industry should invest heavily in research and development so that it can develop new techniques to help it to gain competitive advantage over its competitors. Google Company has done this by investing heavily in research and development as well as in skilled manpower. By so doing, the company has managed to remain at the top of online advertising industry. This means that if the company is to invest in other technology related products, it should invest more than it has invested in research and development. More importantly, the company should be prepared to invest in other areas that it has not invested before. This will not only enable the company to remain competitive in its current industry, but it will also enable it to be competitive in other industries it might venture into.

The second key success factor in technology industry is in talented workforce. This success factor is closely related to the first one in the sense that a talented workforce enables a company to be creative and to be innovative. However, apart from enabling a company to be creativity and innovative, this success factor helps in proper management of resources as well as talents. Accordingly, everything ends up into its rightful place. This means that if the company is to invest in other technology related products, it should invest in skilled labor. Failure to do this will see the company face challenges in managing its resources and moving towards achieving its goals. In relation to this fact, the company should invest heavily in skilled labor as it has been doing in the past if it is to succeed in addressing the strategic issue facing it.

Industry profile and attractiveness

The internet advertising industry that is of major interest to Google Company is characterized by many players ranging from well-established companies to up-coming companies. The few established companies include Microsoft, Yahoo and Google whereas the up-coming companies include Ask.com, AOL, Chitika and Kotera among other companies.

The huge profit that incumbent firms make is what draws majority of up-coming companies into the industry. This is in relation to the fact that the companies do not require a lot of capital to start even if they require it later on as they try to expand their markets. To a great extent, the industry is highly attractive to incumbent firms because most of them make huge profits. For example, over the last few years, Google Company has declared huge profits making it one of the most attractive online advertising companies. More importantly, the ever emerging opportunities in the industry make the industry more attractive to current incumbents. In terms of future prospects, the industry looks promising because the number of internet users is projected to grow exponentially on annual basis. This means that many people will be searching for information online. As they do this, companies and individuals will be willing to promote their products online. To the incumbent firms, it will mean that they will have more business opportunities. Accordingly, it would be worthwhile to invest in this industry. Nevertheless, the industry is likely to be challenging given the possible technology changes that are likely to emerge in the near future. In spite of this fact, the industry is high attractive to firms that understand online advertising and that are willing to grow with the industry as it grows.

Company situation

This section of the paper discusses the company’s financial ratios with an intention of interpreting them and aligning them with strategic issue. It also evaluates the company’s weaknesses, opportunities, threats, and strengths in terms of SWOT analysis with an intention of interpreting them as well in relation to what the company should do in developing its strategic goals.

 

Growth rate

To begin with, the total net sales for the three major competitors have been increasing on annual basis. In relation to this fact, the industry is in the growth life cycle meaning that it has not reached its maturity life cycle. The industry cannot be in the introduction life cycle because some of the companies such as Apple and Microsoft have been in the industry for many years. In addition, Google Company has also been in the industry for the last nineteen years.

The following chart highlights the growth rate for the companies in technology industry. Apple Company is among the leading companies in this industry. Microsoft comes next while Google comes third. Accordingly, if Google Company is to venture into this industry, it should consider the intense rivalry it is likely to experience from these companies. At the same time, it should consider the impact this competition is likely to have on its internet advertising industry.

Industry growth rate

 

 

Revenue by source (in million dollars)

In terms of revenue by source, it can be seen that the company’s main source of income comes from online advertising. The other sources of income though doing well are still so insignificant for the company to rely on them. However, the company should not ignore them because they contribute to its profitability.

Financial analysis

The financial performance of a company is an important factor in assessing its overall performance. It indicates whether a company is making profit or loss. It also indicates the competitiveness of a company in its industry. If a company is making profit, it tends to be financial stable. Conversely, if the company is making losses, it tends to be financially weak.

Profitability ratios: A look at the company’s financial results for the year 2011 and 2012 attached at the appendix indicates that the company’s gross profit margin lies between 65.2 percent and 65.76 percent. The trend is upward indicating that the company has a lot of money to cover its operating expenses. This means that if the company is to expand its businesses, it can cover its operating expenses comfortably. A look at the company’s operating profit margin indicates that its current operations are profitable because the ratio lies between 25 and 30 percent. Despite the fact that the trend is somewhat declining, it does not affect the company’s profitability given the company’s position in the industry. Consequently, it will not be problematic for the company to expand its business ventures.

The net profit margin for the company is in the range of 21 and 26 percent indicating that the company is able to make significant amount of profit after tax. The total return on asset indicates the same because the percentage is high and the trend is upward. This indicates that the company’s assets are profitable. The other profitability ratios indicate that the company engages in profitable business ventures.

Liquidity ratios: With regard to liquidity ratios, the company can be said to be in a good position because its current ratios are within the range of 4.217 and 5.92. This indicates that the ratios are more than one meaning that the company can comfortably pay its current liabilities if it converts its current assets into cash. More importantly, the company has huge amounts of working capitals meaning that these amounts of money can be used to offset current liabilities and finance inventory expansion without necessarily raising money from equity capital or borrowing.

Leverage ratios: As for the leverage ratios, the total debt-to-assets ratio is between 7.6 and 8.3 percent. This means that only a small amount of the borrowed money is used to finance the company’s operations. In terms of creditworthiness, the company can be said to be creditworthy because its long-term debt-to-capital ratio is between 0.04 and 0.049. This range is below 0.25 meaning that only a small amount of capital investment has been financed by both stockholders and long-term lenders. In relation to this fact, the company can raise more money through a public offering at the stock exchange.

As for the debt-to-equity ratios, these ratios are below 1.0 meaning that the company can comfortably borrow additional funds to finance its operations without putting creditors at risk. Generally speaking, financial ratios evaluated in this case demonstrate that the company is creditworthy except for the times-interest-earned ratio that depicts otherwise. With regard to this fact, the company can borrow money to expand its business operations if it wishes to do so, but it should be careful not to enter into financial problems. Activity ratios: Finally, activity ratios demonstrate that the company is managing its inventories efficiently. This is in relation to the fact that it does not wait for too long to receive funds after it sells its products.

In summary, the company is making profit and it is in good financial position. This means that the company can borrow money from creditors if it wishes to do so. It also means that the company is likely to make profit from its future business ventures if they are well developed.

SWOT analysis

Strength

The core competencies for the company are in strong financial resources, strong brand name, superior technology skills and cost advantage over its rivals. Other core competencies are in product innovation capabilities and better product quality.

As for the financial resources, the company has over the years made huge profits. This has translated to a strong financial resource for the company. Accordingly, the company can expand its business ventures without necessarily borrowing money from creditors. As for superior technology skills, the company invests in high skilled human resource capable of making new discoveries in technology industry. In the recent past, the company has hired skilled people to make sure that it will always be ahead of its competitors. As for the brand name, there is no doubt that Google has become the number one search engine in USA, Europe and in Africa. This means that the company enjoys a significant market share in technology industry. Accordingly, if the company can build on this resource, it can maintain its high ranking position in technology industry. As for product quality, the company’s search engine ranks among the best search engines in the world today.

The company leverages its strengths in search engine by using applications such as Gmail, Google maps, Google now as well as YouTube to gather information relating to its users. Upon gathering this information, it develops advertisements that suits the needs of its users, and in the process convinces advertisers to promote their products online. This practice has been a major source of income for the company even if the company has been focusing its attention on other technologies.

Weakness

The company has weaknesses in overreliance on online advertising. In reality, even if the company has lately been exploring other sources of income, its main source of income is online advertising. This means that in case of drastic changes in online advertising, the company is likely to suffer greatly. In order to counter this weakness, the company should focus its attention on other services other than online advertising.

Opportunities

As for opportunities, technology industry is among the most developing industries in the world. This means that there are a lot of opportunities for the companies that are in this industry. For example, the number of internet users grows on daily basis and it is expected to continue with this trend even in the future. Based on this fact, the company is likely to serve more customers if it expands into new geographical markets. More importantly, the company is likely to expand its product line to meet a broader range of customer needs. If the company is to do this, then it is likely to increase its income and profit as well. Above all, given that the company has been in this industry for almost twenty years now, the company can utilize its existing skills to advance its technological know-how in developing new products. At the same time, the company can utilize this know-how to improve its existing products. If need be, the company can acquire rival companies to harness its capacity in the industry.

Threats

In the midst of exploiting existing opportunities, the company is likely to experience the following threats. First, the company is likely to encounter increased rivalry from its competitors. For example, the company is likely to encounter stiff competition from Microsoft as it tries to venture into areas that Microsoft has already ventured. At the same time, Yahoo is likely to compete with the company as it ventures these new business areas. Accordingly, there might be intense rivalry among the major competitors. Second, there is a likelihood that new entrants are likely to enter into the industry given the huge profits the companies make. If this is to happen, the industry’s profitability is likely to be affected in one way or the other. Third, as the number of competitors increase in the industry, buyers are likely to enjoy more bargaining power. As a result, incumbent firms are likely to lose in terms of income. Fourth, given that the company operates in the international market, it is highly likely that the company will be affected by restrictive trade policies in this market. For example, if the Chinese government changes its trade policies as it has been doing, then the company is likely to suffer significantly.

Recommendations

This part of the paper evaluates and justifies the various strategies the company should adopt in addressing the strategic issue. It starts by evaluating the strategic issue then proceeds to making strategic recommendations the company should adopt before concluding by evaluating objectives of the proposed recommendations and justifying those recommendations.

Strategic issue

As the company tries to venture into new business areas, the challenge will be to manage those businesses effectively without interfering with its existing businesses.

Strategy recommendation

In order for the company to manage its new business ventures without interfering with the existing ones, it should do the following. Generic strategy: With regard to generic strategy, the company should focus its attention on differentiating its products so that it can appeal to a broad spectrum of buyers as well as consumers. The company should do this because the needs and preferences for its customers are so diverse to be fully satisfied by a standardized product. In relation to this fact, the company should not limit its business practices to online advertising. Instead, it should diversify its business ventures as it has been doing the past.

Grand strategy: With regard to grand strategies, the company should focus its attention on product development. This means that the company should not at any given time stop investing in research and development. Instead, it should invest heavily on this area as it has been doing in the past. Indeed, given that technology industry is ever changing and ever growing, the company should leverage its potential in product development. It should ensure that its talented workforce is ever developing superior products than its competitors develop. If the company is to do this, it will overcome some challenges that face the industry and be the industry leader. Otherwise, if the company will not develop new products, it is likely to lose it current position in the market and be like any other company in the industry. In this case, the company should stop over relying on internet advertising alone. On the contrary, it should diversify its products by developing new ones and ensuring that they are differentiated. This does not mean that the company should on daily basis think of inventing new products, but it means that the company should focus its attention on improving existing products. It also means creating products that are related to existing ones, but offering more value than the existing ones. Improving existing products as well as modifying them will help the company to market these products through its existing marketing channels. For Google Company, the company should focus its attention on improving its existing search engine and advertising mechanisms. The intention of doing this should be to prolong the life cycle of its products as well as taking advantage of its brand name.

The company should also focus its attention on market development. This means that the company should not at any given time stop marketing its products. Instead, it should continuously leverage its strength in online marketing by promoting its products as it promotes products for other companies. By so doing, the company would be able to attract more users as well as customers.

Objectives

As the company venture into new business areas, it should ensure that they are profitable as the existing. This can only be done through close supervision of their performance. Accordingly, the key performance indicator would be the income coming from those businesses. If the venture would be profitable, then it would be worthwhile continuing with it. Otherwise, if it would not be profitable, it would not be worthwhile to continue with it.

Strategic justification

The company should diversify its products because technology industry is an ever changing industry. More importantly, the company should diversify its products because it has vast technological experience in technology industry. Product diversification will not only enable the company to cope up with frequent changes in the industry, but it will enable the company to invest in new areas that are profitable. At the same time, it will enable the company to leverage its resources in key areas that will be important to the company in the future. As a result, other than sitting back and watching the industry change without doing something, the company should invest in new technologies so that it can compete effectively with its competitors. Furthermore, it should invest in these technologies to strategically position itself in the industry. Failing to do this will deny the company opportunities to do as it hopes to do with its mission. For these reasons, the company does not have any other option other than to diversify its products so that it can capitalize on existing opportunities while at the same time dealing with its current weaknesses and threats.

 

References

Gamble, J., Peteraf, M. & Thompson, A. (2013). Essentials of strategic management: the quest for competitive advantage. New York: Mc Graw Hill.

 

Appendix

Profitability ratios

2012 2011
Gross profit margin 0.6577 0.6521
Operating profit margin 0.2543 0.3098
Net profit margin 0.2140 0.2569
Total return on assets 0.1584 0.1422
Net return on total assets 0.1145 0.1342
Return on stockholders’ equity 0.1497 0.1675
Return on invested capital 0.1437 0.1593
Earnings per share 32.8349 30.1455

 

 

Liquidity ratios

2012 2011
Current ratio 4.217 5.919
Working capital 46,117,000,000 43,845,000,000

 

 

 

Leverage ratios

2012 2011
Total debt-to-asset ratio 0.0826 0.076
Long-term debt-to-capital ratio 0.04 0.0488
Debt-to-equity ratio 0.108 0.0949
Long-term debt-to-equity ratio 0.0417 0.0514
Times-interest-earned ratio 20.3834 20.1062

 

 

 

Activity Ratios

2012 2011
Days of inventory 10.7315 n/a
Inventory turnover 34.0119 n/a
Average collection period 57.360 52.258

 

 

 

SWOT Analysis

Strength

·         Strong brand name in search engines

·         Low operation cost

·         Strong financial resources

·         Superior technology skills

·         Cost advantage over its rivals

·         Competencies in product innovation capabilities

·         Better product quality

Weaknesses

·         Overreliance on online advertising

 

Opportunities

·      Serving additional market segments

·      Expanding the company’s product line

·      Utilizing existing company skills

·      Acquiring rival firms

Threats

·         Stiff competition from its rivals

·         New entrants into the industry

·         Increased buyer bargaining power

·         Restrictive trade policies in international market

Porter’s five Forces diagram