Google Business Model


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How Google use its capability to generate value?

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Google Business Model

  1. 1. Google An Excellent The Business Model
  2. 2. Only Yesterday ..Jan 22 nd 2009 <ul><li>Google's Fourth-Quarter Earnings Beat Expectations ( $5.10 per share as against expected $4.96 per share ) </li></ul><ul><li>“… and we’ll continue to invest in Google’s core search and ads business as well as in strategic growth areas such as display, mobile, and enterprise .” - Eric Schmidt, CEO of Google </li></ul>
  3. 3. Build it and they will come
  4. 4. Initial Business Model (Algorithmic Search Technology Development) <ul><li>Earned revenue solely through proprietary licensing its search technology to Yahoo and other 3rd parties </li></ul><ul><li>Google’s website contained no portal, communications, tools, or advertising content </li></ul><ul><li>Google soon became the leader in algorithmic search technology and stood well positioned to move toward the more robust business model of paid listings, which further monetized search technology. </li></ul>Content Providers Content Providers Content Providers Users Users Users Users Capability of Connecting Data with Users
  5. 5. Expanded Business Model (Search Engine Funded by Paid Listings) <ul><li>Search technology becomes a critical component of Paid Listings as “search engine ads deemed more effective for marketers” than banner ads </li></ul><ul><li>Leveraging its strength in algorithm design, Google adopts a variant of “cost-per-click” that incorporates “expected click-through-rate” into the ranking of ads to help ensure the viewer saw the most relevant ads first. </li></ul><ul><li>Google’s new algorithm not only provides better service to marketers, but also increases Google’s revenue through better conversion rates. </li></ul><ul><li>Google expands into “contextual” paid listings, Gmail, Portal offerings (iGoogle) </li></ul>Google’s Expanded Model Advertisers Content Providers Advertisers Content Providers Web portals Users Users Users Users Advertisers Advertisers Users Users Users
  6. 6. How Paid Listing Works Click on banner adds American Express pays Yahoo $.50
  7. 7. Google uses Search Results Sponsored Links $$ Free Search Results
  8. 8. Click Through Rate
  9. 9. Google’s Business Model: <ul><li>Three sets of Customers: </li></ul><ul><ul><li>Internet users (C) , Advertisers (A) and Web Services (W) </li></ul></ul><ul><li>The Offers: </li></ul><ul><ul><li>To (C): Search for anything users can think of free of charge </li></ul></ul><ul><ul><li>To (A): Induce searcher’s traffic to advertiser’s sites </li></ul></ul><ul><ul><li>To (W): Provide Search technology to Web Portals </li></ul></ul><ul><li>Capabilities </li></ul><ul><ul><li>Connection of Data: Precisely connect searched data and advertiser’s data to searchers. </li></ul></ul><ul><ul><li>Establish data marts (map, satellite, street view, etc) as a new web infrastructure to facilitate business transactions </li></ul></ul><ul><li>How value is captured: </li></ul><ul><ul><li>Paid listing advertising (Cost Per Click) </li></ul></ul><ul><ul><li>High Internet Traffic </li></ul></ul><ul><ul><li>High Conversion Rate </li></ul></ul>
  10. 10. Activity Core New Offerings / Deals S o u r c i n g S p a c e New Offerings / Deals New Offerings / Deals New Offerings Deal Foundation & Integrative Capabilities Activity Capability Capability Enhanced Over Time Android phone design Gadgets Design Product Marketing Server Hardware develop Search Algorithm Data Connection Map data base Customer experience Google checkout payment Software integration Street view data base Business Strategies Build on-line infrastructure Satellite data base Open Office G-Doc Picasa Photo Chrome browser Innovation Capabilities: Core and Non-Core
  11. 11. Google’s Value Calculus and Value Generation Engine Package Compelling offers Access the customer Create Products and Services <ul><li>iGoogle </li></ul><ul><li>Free to user, charge to advertisers </li></ul><ul><li>One convenient interface </li></ul><ul><li>Old model: license to Yahoo, AOL, Ask </li></ul><ul><li>Search Engine </li></ul><ul><li>G-Map, G-Doc, G-Earth, </li></ul><ul><li>Android Phone, Chrome… </li></ul><ul><li>Value Gen Engine: </li></ul><ul><li>Creative employees </li></ul><ul><li>Search Technology </li></ul><ul><li>Value Captured by Company: </li></ul><ul><li>Paid Listing (CPC) </li></ul><ul><li>High traffic </li></ul><ul><li>High Conversion Rate </li></ul>Value Created for the Customers: Find Anything free of charge, through one standard interface by Search
  12. 12. Google’s Balanced Model: Virtuous Cycle <ul><li>iGoogle-- packs whole product portfolio. Became the Reference Point” in the industry </li></ul><ul><li>Free to users, charge to Advertisers by clicks </li></ul><ul><li>Customer Experience: singe interface, easy and reliable, create conveniences. </li></ul><ul><li>Best Search Engine in the industry </li></ul><ul><li>Creation of products of Google’s offerings: G-Map, G-Doc, G-Earth, Android Phone, Chrome… </li></ul><ul><li>Old model relies on Yahoo, AOL, Ask to get customers- not sustainable </li></ul>
  13. 13. Transformation Business Model <ul><li>Great User Experiences transforms web users’ browse behavior </li></ul><ul><li>High Internet Traffic- Let users spend as little time in Google web site as possible. </li></ul><ul><li>High Conversion Rate: (high % in business transition) so advertisers are willing to pay </li></ul><ul><li>Paid listing advertising (Cost Per Click) </li></ul><ul><li>Licensing fee from web portal sites (Yahoo, AOL, Ask)   </li></ul>Value Capture <ul><li>Connection of Data: Precisely connect searched data and advertiser’s data to searchers.   </li></ul><ul><li>Establish data base (map, satellite, street view, etc) as a new web infrastructure to facilitate business transactions </li></ul><ul><li>Web services </li></ul><ul><li>Open sourced platform  </li></ul><ul><li>Maps, e-mails, </li></ul><ul><li>Android cell phone, sourced to HTC and open source software. </li></ul>Capabilities and Capability Sourcing <ul><li>Search for anything users can think of free of charge. Changed internet user’s behavior from “browse” to “search” </li></ul><ul><li>iGoogle: the prototype of future operation system </li></ul><ul><li>Embedded advertisement in searched results. </li></ul><ul><li>Induces searcher’s traffic to advertiser’s sites through searched results. </li></ul><ul><li>Map facilitates local business </li></ul><ul><li>Quicker and better Search results </li></ul><ul><li>Provide Search technology to Web Portals </li></ul>Offers Transformation Augmentation Substitution Business Model Components ( for searchers) Degree of Change  
  14. 14. Value Created for Internet Users (Transformation) <ul><li>Quick and Precise Search: The perfect search engine would understand exactly what you mean and give back exactly what you want. </li></ul><ul><li>Single interface to search for anything, on-line or off-line (local files) , websites, maps, videos, documents, applications and many more. </li></ul>
  15. 15. Value Created for Advertisers (Transformation) <ul><li>Google leads prospect customers( pre-screened) to my web site </li></ul><ul><ul><li>High click through rate </li></ul></ul><ul><ul><li>High conversion rate (resulted in sale) </li></ul></ul><ul><li>Bang for buck in advertising expenses. </li></ul><ul><li>Google helps me improve my advertise listings. </li></ul>
  16. 16. Value Created for Web Portal (substitution model) <ul><li>Web portals (Yahoo, AOL, outsource the search technology to Google </li></ul><ul><li>They don’t have to spend resources on search algorithm </li></ul><ul><li>These companies can focus on their core value such as providing contents. </li></ul><ul><li>This model is not sustainable for Google or its partners. </li></ul>
  17. 17. Google’s Evolving Value Calculus Value Gen Engine: Creative employees Value Captured by Company: Licensing Search Engine Tech to Web Portals Value Created for the Customers: Search Engine Algorithms Value Gen Engine: Creative Employees / Innovation Value Captured by Company: Licensing &Ad Revenue Value Created for the Customers: Search Engine & Advertising Value Gen Engine: Innovation/ worlds best place to work ! Value Captured by Company: Licensing, Ad Revenue, Web Services Value Created for the Customers: Search Engine, Advertising, Virtual Web Software/Services
  18. 18. Competitors ** Teoma and Wisenuts are California startups in search engine space. Energy Companies – Google has spent millions in renewable energy R&D. Phone – Google’s 3G has started gathering momentum New Search imitators -** Teoma and Wisenut have imitated Google in terms of service and has better search algorithm but has smaller database. Future Competitors Current Competitors ( Search, Browser, OS and other IT services )
  19. 19. Next Step for Google <ul><li>Disruptive Operation System </li></ul><ul><ul><li>Google would not compete with Microsoft on operation systems. </li></ul></ul><ul><ul><li>IT devices (not necessarily computers) may not need operation system in the future </li></ul></ul><ul><li>All devices connected with Internet can operate with Google’s offerings </li></ul><ul><ul><li>Mobile devices (smart phone, PDA, netbooks) connected with Google resources (Maps, business directories) to facilitate more business for clients. </li></ul></ul><ul><ul><li>iGoogle: a personalized web portal, can do almost anything OS can do </li></ul></ul>
  20. 20. Factors to Google’s Success <ul><li>Corporate environment attracts top talent, fosters innovation, and promotes some risk taking has made Google a leader in both algorithm search technology as well as strategically significant virtual applications. </li></ul><ul><li>Governance - Google maintains a corporate structure designed for the long-term horizons with some independence from Wall Street </li></ul><ul><li>Corporate Values – Google’s values and unconventional management practice promote trust among employees and clients by providing commitment to leading-edge technology driven solutions. </li></ul><ul><li>Managing Innovation – Google’s resource allocation promotes risk taking and “bottom-up” innovation, which tends to driver high-reward projects with larger margins. </li></ul>