Group 12 IB Project - Google

Group 12AMITKUMAR KALPE (PGP-11-010) ANGSHUMAN ADHIKARI (PGP-11-011) JAISON JOHNS (PGP-11-026) RHEA MAINI (PGP-11-062) SANKET TANDON (PGP-11-067) SHWETA SAWADH (PGP-11-074)

Executive summary :

Google is one of the most successful internet companies. It is the market leader in internet search engine. Now the company offers various other services such as Youtube, blogging, gmail, reader, android smartphone operating system. We tried to study the timeline of the various acquisitions and major decisions by Google. We tried to analyze the factors which are associated with success of Google. The study of the value creation model for Google revealed that they always try to take the first mover advantage by bringing out innovative services in the market. We applied the PESTLE framework to understand the effect of the various factors on the growth of the company. Then we applied the OLI framework which explained the rationale behind their first office outside United States of America, in Dublin. They had some advantages in this move and leveraged on those. Google recently faced some major issues in biggest internet consumer market of the world, China. They faced cultural and political issues in china. To analyze this situation we studied the national competitiveness of search engines. Google has successfully anticipated the future growth of the smartphones and started their smartphone operating system, Android. The study of smartphone operating systems market using porters five forces model showed there the industry was indeed very attractive and Google had some advantages due to its technological competencies. As part of providing services to the huge potential markets of developing nations, Google has started customizing content as per local languages. The impact of this strategy was studied. After the detailed analysis of various international business strategies of Google, we provided some of the suggestions which will be helpful to address future issues. There is still huge market potential for Google as they are yet to make their mark on Social Network.

Contents :

ContentsGoogle in International market : .............................................................................................................. 4 Googles Success Mantra: .................................................................................................................... 5 Googles network circulation value creation model: ................................................................................ 6 PESTEL ANALYSIS for Google: ................................................................................................................... 7 OLI before Google going to Dublin in 2004 : ............................................................................................. 8 Google going to China ........................................................................................................................... 11 Google Android OS : .............................................................................................................................. 13 Recent global initiatives : ....................................................................................................................... 14 Suggestions : ......................................................................................................................................... 15 Reference : ............................................................................................................................................ 16

Google in International market :Google is one of the most used search engines in the world, offered in approximately 144 countries. Google search engine holds around 60% market share in the worlds search engine requests. While Google oriented in the United States, it holds 10% higher market share in Europe than in United States. Google Inc. has approximately twenty American based offices, thirteen offices in Asia Pacific, twenty-Six in Europe, three in Canada and many more in other part of world. Googles president and co-founder, Sergey Brin, said in May 2000, Google plans to quickly expand into wide variety of new markets. The simplicity of our user interface and the scalability of our back-end systems enable us to expand very quickly. With almost 75 office locations as of April 2010 in the United States and all around the world, Google Inc. is swiftly becoming a noticeable global brand. Googles Abroad Activities: 2000: Google provides an interface in several languages French, German, Italian, Swedish, Spanish Portuguese, Dutch etc. 2001: Google is now available in 26 languages and has opened its first international office in Tokyo. Google has partnered with Universo online (UOL) (the largest online service and internet provider in Latin America) makes Google the major search service for millions of Latin Americans. 2002: Google is available in 72 languages, partnership with AOL and first office in Sydney Australia 2003: Several national acquisitions extend Google services abroad. Dublin becomes the first location for Googles regional operations outside of the U.S 2004: More than 100 Google domain names are available. Google opens new engineering offices in Bangalore and Hyderabad, India. R&D centre opened in Tokyo. 2005: Google Maps application is released for Europe. New R&D centre opened in China as well as the first offices in Mexico and Argentina opened.

2007: Partnership with China Mobile (the worlds largest mobile telecommunications carrier) to provide mobile and internet search services in China. Partnerships signed to give free access to Google Apps for education to 70000 university students in Kenya and Rwanda 2008: This saw the biggest strategy change by Google with entering into video industry. Google took over You tube and became one of the largest surfed site once again. 2009: Googles focus for 2009 was on mobile and Collaboration and one of the significant step in this was acquisition of AdMob which was the costliest buy in 2009 2010: This year saw as many as 40 acquisitions which were more focussed on building revenue streams. But with the downfall in the market, doubts were raised for Googles capability of integration of all the resources. 2011: Google stepped up to compete with Apple and Microsoft with acquiring Motorola Mobility to give new dimension to Android.

Googles Success Mantra:In over 10 years span Google has developed international marketing Structures to establish a presence in more than 144 countries. This has been possible with its strategy pertaining to all around the world. Scalability: Ability to easily grow at marginal cost Applied to infrastructure : Ability to adapt its size to high load and volumes Applied to business models: ability to monetize millions of users

Network Effects: The utility of a good or a service varies with the number of users. The reach of a critical mass of users constitutes a significant barrier to the entry.

Data Mining: The web offers the opportunity to exploit and analyse a very large amount of data Users behaviour can be analysed to create monetizing value

Openness:

The traditional walled garden media strategy becomes irrelevant Content and services must be open and interoperable to favour audience circulation

Co-creation: Non-traditional actors become part of the value chain. Users, content creators and external developers are given the tools to create new markets and enrich services.

Business Model: Advertising is not a market but a business model Any market that attract advertising is a target for Google

Googles network circulation value creation model:Traditional value creation: e.g Microsoft The global value of the company relies on independent lines of products/business units.Server Products Customer products Business Products

Entertain ment

Network Value Creation: E.g. Google: The global value of the company relies on traffic between network parts (proprietary or partners)

Gmail

Apps

Search Engine

Partners

Youtube

(Reference: Googles key success factors http://www.fabernovel.com) 4

PESTEL ANALYSIS for Google:Political : Contract enforcement Framework for Anti-trust laws Intellectual property protection Each partners Favoured trading partners Pricing regulations Worldwide Trade regulations & tariffs Difference in Taxation - tax rates and incentives Economic: Government intervention in the free market Skill level of workforce Exchange rates & stability of host country currency Comparative advantages of host country Efficiency of financial markets Nature of economic system in countries of operation Infrastructure quality Social Analysis: Standard of Education Demographics Culture (gender roles, etc.)

Class structure Entrepreneurial spirit Attitudes (health, environmental consciousness, etc.) Leisure interests

Technological Analysis: Recent technological developments Technology's impact on product offering Impact on cost structure Impact on value chain structure Rate of technological diffusion

Legal:

Click fraud Google Bombing DOJ requested search histories; Google went to court Battle on Net Neutrality

OLI before Google going to Dublin in 2004 :Ownership strength of Google Cutting edge advantage in technology Google emerged within not time as he best search engine technology available Couple with the user friendliness felt by the customers across the world. Even the least tech savvy person could flexibly use Google for searching and get the information. Credibility built among the user around the world. Personalization done by introducing the regional languages particularly European regional languages. In 2000 itself Google launched 10 language versions including: French, German, Italian, Swedish, Finnish, Spanish, Portuguese, Dutch, Norwegian and Danish and the list kept on adding.

Location advantage in Ireland (Dublin) Improved national economies by cutting down of unnecessary government expenditures National wage partnership programs introduce which fostered co-operative industrial relationships

Substantial reduction in taxes levied on the corporates Special targeted programs for attracting FDI Financial support from European Union Labour market in Ireland is considered to be more flexible Ireland had very attractive corporate tax rate in a global context and the likely high after tax-rate of return on investments (Source: IMD, World Competitiveness Year Book, 2004) HIGHEST output of Science and Engineering Graduates. This data compares the position of Ireland within Europe and its member states and with the main competitor locations in Science and Technology, Japan and the US. (Source: EU Directorate-General for Research: Third European Report on Science and Technology Indicators 2003; per 1000 population aged 20-34) The MOST GLOBALISED Country for 3 consecutive years (Source: AT Kearney / Foreign Policy Magazine Globalization Index, 2004) Irelands naturally cool climate helps in reducing the data center cooling cost to be minimized.

Internalization advantage Datacenter handles all the Google map, Gmail etc. searches directed towards it Privacy and security reasons add to it the advantage of operating datacenters themselves.

Google was a having O-advantage, L-advantage and I-advantage to move into Dublin with datacenter operation. Hence it went ahead with opening its first international office in Dublin in October, 2004. The pool of talent from a diverse multinational base allowed Google build their EMEA Headquarters in Dublin. The talent, ambition and drive of the Irish workforce has allowed Google expand quickly and efficiently beyond their original plans. These FDI investments coming through these technologically advanced companies like Microsoft, Google etc. coming into Dublin has changed the characteristics and competitiveness of Ireland. Along with these changing political and economic environment changed the face of Ireland. Thus according to the latest reports of IMD World Competitiveness Yearbook 2011. The Educational System in Ireland meets the needs of a competitive economy (rank) 9 Flexibility and Adaptability of workforce when faced with new challenges (rankings) 7 Labour Productivity (PPP) - GDP per person employed per hour. (US$) Rankings 3 Better Management talent in the country The 2008-2012 Business Environment Ranking of the Economist Intelligence Unit placed Ireland 11th globally out of 82 countries, naming it as one of the most attractive business locations in the world.

Over the years Ireland has developed in its own way and now what it has to offer to investors are: Strong government supported RD&I Protection of intellectual property rights through strong legal frameworks which is more favourable for technology driven companies Strategic access to EMEA region Excellent IT skills, network facilities and telecommunication infrastructure

Favourable labour market Strong ICT and engineering professionals Capital investment relief Corporate tax rate Research opportunities and collaborations

Considering all these advantages Google is again thinking of taking the OLI advantage, by investing in Dublin on datacentres as per the latest news and updates. According to news reports Google is to invest 75m (65m) in a new 11-acre data centre in Dublin.

Google going to ChinaNational competitiveness of search engines industry in China

Role of Chance

Role of Govt

Factor Condition In china the land for industries were cheap, with advent of sprouting large SEZ the special economic zones China is having an extremely cheap labour but information technology company lie goggle has little do with low cost labour. The human resource required was skilled technicians and engineers. For which there is a serious dearth in China. The demand for mid-level professional technicians is 31 percent more than actual supply, while the rates for junior and senior technicians are seven and five percent respectively, according to the second quarter report by the Ministry of Labor and Social Security (MLSS). To maintain large servers and to maintain it cost effectively there should be cheap source of power supply. China is one among the largest coal reserves in India. Also its hydroelectric resources are massive. Thus the electric power supply in China is also comparatively cheap. Undervalued currency is an attraction for FDI inflows to come into the country. Loose environmental regulatory requirements and standards are another reason attracting IT companies.

Firms strategy, structure and rivalry The existing rivalry in China is baidu. It was enjoying a monopoly when Google was planning to enter China market. Google was the most used search engine and most user friendly Google china was headed by leaders who already had operational experience in China, thus was well versed with Chinese culture. Google had a market share approximately 29 % while Baidu enjoyed a 60% market share in China More over Baidu was offering search options in Chinese were as Google was in English. Hence opinion among the local Chinese citizens will be more for Baidu than Google.

Demand condition The large base of internet users in a single market was lucrative for Google to foray into Chinese market. The google.com which was accessible in china was down at least 10% of the time Other products like Google News and Gmail for half of the time were not even accessible.

Supporting Industry The contribution of supporting industry is negligible for Google. The R&D facilities are developing in China in faster pace. The communication and telecommunication infrastructure in China are extremely good

Role of Government The Chinese government is not transparent The government policies of restriction on the search content that can be displayed Internet censorship policies of China are stricter it will not allow to display certain content in search. Google has to agree to enter into the Chinese market. The government efficiency ranking of china according to IMD was 8 in 3007 but it dropped to 33 by 2011. The rank of government efficiency in competitiveness factor was 8 in 2007 dropped to 33 by 2011

Finally Google went live in china on Jan, 2006. While entering the Chinese market it seems like Google was more iterated in tapping the large customer base available. When doing business in China the influence of governmental policies can have lot of implication on the business. It is this government policy of security and control over the free flow of information that caused the trouble for Google. Google havent moved their R&D and sales offices out of China. But under the existing condition Google has challenged China government by bypassing the search queries

through Hong Kong server. This will worsen the situation of the rest portion of the business like R&D also. So Google has to carefully knit its strategy towards China In the future.

Google Android OS :Five Forces Model : Smartphone OS Industry -

Threat of Entry: Low There are high entry barriers for newcomers to enter the smartphone operating system industry. The barriers are as follows : High capital and technology requirements Patent contention High switching cost for carriers and smartphone manufacturers Bigger learning curve for software developers and hardware manufacturers

Threat of Substitute: Moderate The convergence of PC and cellphone attracts attention from many large PC manufacturers. Many of the technology companies do have their research centers which constantly trying to come up with new products. So there is always a threat of disruptive innovation.

Supplier: Low Many major players in the industry develop their products either from free open-sourced product or from their own technology. They generally license patents from some other companies if needed, but do not use out-sourced development. Therefore, there is very low supplier power in this industry.

Bargaining Power of Buyers: High There are many types of buyers for smartphone OS such as smartphone users, carriers having contracts, hardware manufacturers and software developers,. For smartphone users, information about platforms is available on the internet and they keep on comparing various options. Also number and types of applications are important to the users. If some competitor comes with killer application then customers will switch to that OS.

Rivalry: Very High The market of smartphone OS is growing rapidly. Major competitors are all using the strategy of online application store to provide a better user experience of purchasing software, while they are differentiated in the revenue model and targeting market. Competitors are quick to adapt to the trend of the market. For example, push email by blackberry was copied by all the major players in order to attract business users. To conclude, the Five Forces analysis shows that it is an attractive market and Google has advantageous position due to its technological competencies.

Recent global initiatives :Google faced stiff competition from Microsoft in PC OS market, but there was no such dominating force in smartphone OS. Android, an open-source operating system designed for mobile devices, is Googles push in this area. They introduced open source Application development along with the OS which provided users many free applications. This platform is growing rapidly and currently has more than 5,00,000 applications. This move has also helped Google on the globalization front. Many developers are now creating applications for local markets in local languages. This helps in spreading Android OS in different parts of the world without Google actually creating applications. It is a win-win situation for Google, application developers, smartphone manufacturers and end users. The future strategy in the smartphone OS market would be forward integration and come up with Google smartphones. Google already has a huge brand name. This move will allow them providing better service to the customers and to get a share in rapidly growing smartphone market. Google recently bought mobility business of Motorola majorly to get the patents and to have inorganic growth.

Around 97% of the revenue for Google is comes through advertising. After dominating the US market, they anticipated that they need to get advertisements from all over the world in order to grow. So as a part of their globalization strategy, they focused mainly on selling more advertisements in local languages. Along with the local language ads importance is given to the personalized ads so that only relevant ads are shown to the user. Google has dominance in the search engine market. The Smartphone market is on the horizon and has experienced an exponential growth. Google anticipated this huge revenue opportunity consonant with its core competencies. With a smartphone strategy, Google can not only provide search results for the smartphone users but also mine data about users and provide personalized information based on multiple dimensions.

Suggestions : Localization of the services provided is the key for Google. Focus on the local languages as this will ensure that large number of potential customers are targeted. They need to do it quickly in all major markets so that local players do not get the first mover advantage Smartphones market is going to be the next big thing. They are already experiencing success with their Android OS. Now they can expand further and come up with their own smartphone. This move will ensure that the bargaining power of the mobile manufacturers will be reduced and Google will not have any dependency on others. They can also partner with mobile network carriers too. Google should consider the cultural and political issues before providing service to the new markets. The Chinese example showed the importance of this. There are major concerns about privacy of the data of the users. Currently there are many litigations against google. Social media is gaining popularity day by day. Facebook has emerged as the clear market leader in this segment and it applies the same advertise based revenue model. The Google has been lagging behind in this sector and its previous attempt ,Google Plus, failed to create an impact. The company can focus on this sector as it has very high growth potential.

Reference :

Google Annual Reports http://www.dipity.com/SFChronicle/Google/

http://www.imd.org/research/publications/wcy/upload/scoreboard.pdf http://www.slideshare.net/rk1234_singh/china-and-international-tradehttp://www.idaireland.com/invest-in-ireland/talent/ http://www.globalpost.com/dispatches/globalpost-blogs/bric-yard/googles-china-problem