Why GOOGLE Thrive and Others Cant Make it ?

  • 1,040 views
Uploaded on

A Detail case study by Fabernobel how google dominate and why shall it remain undisputed for several coming years

A Detail case study by Fabernobel how google dominate and why shall it remain undisputed for several coming years

More in: Technology , Business
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
No Downloads

Views

Total Views
1,040
On Slideshare
0
From Embeds
0
Number of Embeds
3

Actions

Shares
Downloads
55
Comments
0
Likes
1

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Everything you always wanted to know about Google…But were afraid to ask Paris, December 2008
  • 2. December 2008 • Everything you always wanted to know about Google… • ..……. 2 This work is licensed under the Creative Commons to allow for further contributions by other specialists and web users in the coming months. To view a copy of this Attribution-NonCommercial- ShareAlike3.0 Unported license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 1712nd Street, Suite300, San Francisco, California, 94105, USA.
  • 3. December 2008 • Everything you always wanted to know about Google… • ..……. 3 Google key success factors : Web specific ? Scalability • Ability to easily grow at marginal costs • Applied to infrastructures : ability to adapt its size to high load & volumes • Applied to business models : ability to monetize millions of users Network effects Data mining Openness Cocreation Business model • The traditional walled garden1 media strategy becomes irrelevant • Content and services must be open and interoperable to favor audience circulation • 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 • The web offers the opportunity to exploit and analyze a very large amount of data • Users’ behavior can be analyzed to create monetizing value • 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 • Advertising is not a market but a business model • Any market that attract advertising is a target for Google 1 Network or portal which offers only its own content or services to users
  • 4. December 2008 • Everything you always wanted to know about Google… • ..……. 4 Why won’t Google be affected by the crisis ? Why is Google trying to change the mobile world ? Why isn’t YouTube a content portal ? Why does Microsoft fear Google ? How Google wants to compete with Facebook ? Why is Google buying satellites ? How does Google buy traffic ? Why did Google acquire DoubleClick ? Why doesn’t Google monetize all its services ? How does Google capitalize on Open Source developers work ? How did Google capture the offline advertising market ? Why is Google stealing our voices ? Is PageRank a really competitive advantage ? How does Google turn advertising into information and performance ? Annex: Network effect, two-sided market, glossary, financial , contact 1 2 3 4 5 6 7 8 9 11 12 13 14 10
  • 5. December 2008 • Everything you always wanted to know about Google… • ..……. 5 Why won’t Google be affected by the crisis ? During a crisis, performance advertising gains market shares + 3% 2007-2008 1 YouTube monetization increases Estimates 2008 : Revenues = 200 M $ 1 Monetisation of the Internet Mobile audience 260 millions mobile subscribers worlwide oct 2008 1 Explosion of the non advertising revenues +450% 2007-2008 Performance advertising On line video Internet Mobile Licenses and other revenues Google is in a situation in which it can resist the economic crisis and find new revenue sources, both advertising and non-advertising 1 : faberNovel estimates 4 levers will allow Google to increase its revenues amidst the economic crisis Revenues 2008 Revenues 2012 Bn$ 201 Bn$ 35 1 1
  • 6. December 2008 • Everything you always wanted to know about Google… • ..……. 6 Why is Google trying to change the mobile world ? (1/2) Mobile industry is based on a “ traditional” locked values chain. Entry barriers stop Google from applying its models to the mobile industry: Terminal Operating System Portal Operator Web Contents Examples: Limited Network Access Access restricted to services/contents and to their improvement • Terminals assigned to a unique operator • Difficulty of interconnecting networks • Operator portals favored over other portals • Services offered by terminal manufacturers favored over other services • Closed operating systems 2 The mobile industry is not suited for the Google development model based on openness, interoperability and network effects.
  • 7. December 2008 • Everything you always wanted to know about Google… • ..……. 7 Why is Google trying to change the mobile world ? (1/2) In order to duplicate its open model, Google designed a three fold strategy : 1 Operating System Location-based services Cab4me FreeFamilywatch Games Golfplay JOYit Social Networks Jaiku 3Wertago Collaborative Tools ShareYour Board Grand central 3 2 Federal Communications Commission Google breaks open the mobile industry value chain to create an environment that will be fit to the distribution of its products and monetization model. 3 Acquisitions Android : Open Source O.S.1 Lobbying Telco partnerships • Android Developer Challenge: Contest for developers to create new applications for Android • Open Handset Alliance: Common initiative of 34 mobile phone industry players (manufacturers, suppliers and distributors) aiming at spreading Android • Google candidacy for mobile license attribution aims to force the FCC2 to impose an openness clause to the winner • A success : clause partially imposed on the winning bidder, Verizon. • Pressure from Google to force operators to offer its applications as default options • Sharing of advertising revenues between Google and operators 2 In addition, Google developed and acquired mobile devices applications :
  • 8. December 2008 • Everything you always wanted to know about Google… • ..……. 8 Why isn’t YouTube a content portal ? (1/2) YouTube acquisition is part of a strategy to monitor key content and audience hubs. YouTube has already won the audience battle … … 1 NewYork Times 2 Hitwise 2008 75% 60% 9% 16% 4%8% 2%3% 1% 1% May 2008 May 2007 Organise information Give access to information Monetise contents through various sources of audience •A new information silo: video search •Next : Speech to text technology : information searches within video contents • YouTube bandwidth spending estimated to reach 1M$/day1 • Broadcasting of contents through Google websites as well as other sites • Revenue sharing logic Market shares of 5 leading video websites, United States (may 2008 vs.may 2007) [%]2 3
  • 9. December 2008 • Everything you always wanted to know about Google… • ..……. 9 • YouTube Program Partner : Payed providers of semi- professional content • Broadcasting contracts with major content providers Encourage content providers to use the service Attract as many viewers as possible Monetize through relevant advertising tools Unlike its competition, YouTube follows an open logic and focuses primarily on developing content distribution tools : YouTube acts as the platform of a two sided3 market composed of content providers and video seeking users. Why isn’t YouTube a content portal ? (2/2) 2 Clickable text advertising displayed on a video 3 See Annex • Broadcasting videos on YouTube website and other Google sites (ex : Google.com, GoogleNews) • Exporting videos (blogs, social networks) and developing API1 for advanced broadcasting on third party websites • Broadcasting on all video devices : television, mobiles, multimedia players, video consoles • Traditional advertising: AdSense and banners • In-video advertising : Pre-roll, post-roll, overlay2 • Brand advertising: broadcasting video ads within an environment coherent with the brand’s image • E-Commerce: Affiliation of partner websites (Amazon, Itunes, video games) 1 Application Programming Interface. Standardized programming protocol allowing applications to communicate 3
  • 10. December 2008 • Everything you always wanted to know about Google… • ..……. 10 Why does Microsoft fear Google ? Google’s ambition isn’t limited to “in browser” Web services, but extends to any online or offline application market. Google sets out to enter the online application market, MSFT’s cash cow : Google partly « destroys » Microsoft’s market when shifting value from offline to online • Launching of the Office Google software pack: a word-processor, a spreadsheet program, a presentation tool and a calendar • Free alternative to Microsoft Office pack • Acquisition of SketchUp, a 3D modeling software with a free version made available Disruption of offline application market segments • Launching of Google Gears: Open Source project allowing an offline use of online applications • Claimed ambition of becoming a standard and encouraging online languages as opposed to offline programming languages Consolidation of the online environment 4
  • 11. December 2008 • Everything you always wanted to know about Google… • ..……. 11 In 2007, Google launched Opensocial : a series of multi platform API allowing developers to create compatible applications with partnering social networks, Ex : Slideshare application available on Linkedin and hi5 OpenSocial is not a Facebook competitor but a «meta-social network ». Google wants to become the « social data search engine » and to monetize this data, leveraging network effects. Network effects How Google wants to compete with Facebook ? Facebook’s platform is limited, Google’s is the whole Web 5 Network effects Network effects
  • 12. December 2008 • Everything you always wanted to know about Google… • ..……. 12 Why is Google buying satellites ? (1/2) Since 2005, Google has been multiplying investments in all kinds of infrastructures: Wifi Gratuit Wimax Backbone1Baloon Wifi Satellite • 60 M$ Investment • Internet access in developing countries • Partnership • A mobile high-speed internet access technology • A 100 M users market by the end of 2008 • 100 M$ investment • Expansion of high- speed networks • Partnership announcement • Internet access technology superior to satellites for isolated areas • Free Wifi in Mountain View • Investment in Fon: shared Wifi access 1 Long distance high-speed networks, core of the Internet network 6
  • 13. December 2008 • Everything you always wanted to know about Google… • ..……. 13 Internet infrastructures is actually Google’s business infrastructure: Traffic on Google websites depends on internet infrastructure development and availability (Backbone, Wifi, Satellite,…) Google has three objectives when investing in the upstream part of its value chain: Strengthen and secure existing infrastructure Favor high-speed Internet access Prioritize Internet access for unconnected countries or populations • Strengthening and securing existing infrastructure lightens Google’s dependancy on its providers • Favouring high-speed Internet access means more time spent and usage volumes, thus increases Google services usage • Future web users are Google services’ next users Why is Google buying satellites ? (2/2) Through infrastructures investments, Google reinforces its traffic providers and increases access to its services. 6
  • 14. December 2008 • Everything you always wanted to know about Google… • ..……. 14 How does Google buy traffic ? Google asserts its ability to attract users on the sole basis of its services quality and without turning to advertising… Truth is Google largely buys traffic from providers •Firefox: 60 million daily users in 2008 •Google finances 85% of Firefox in exchange for having its search engine embedded in the browser Browsers • In 2006, partnership deal with Dell to have the Google search engine appear by default on Dell computers • In 2008, partnership deal with Apple to have the Google search engine appear by default on Iphones (13 million devices sold by october 2008) • Partnerships with manufacturers allow the search engine to be guaranteed to in a prime position. Manufacturers Google has the financial power to buy traffic from partners, accessing to massive audiences. • The Google Toolbar is part of the web navigator, which makes Google the default search engine • Adobe installs it as part of a package with Shockwave(2006) • Sun has been installing it as part of a package with Java since 2005 (20 million uploads/month) Toolbar • In 2005, Google bought a 5% stake in AOL for 1 billion$ (20 million subscribers at time of deal) • Google became AOL’s white label search engine • Google expands its advertising network reach Portals 7
  • 15. December 2008 • Everything you always wanted to know about Google… • ..……. 15 Why did Google acquire DoubleClick ? • In 2007, Google acquired DoubleClick, one of the world leaders in display advertising : 1 www.attributor.com/blog/2008/03/ Advertising houses < 100k UV2 100k- 1M UV2 >1Mon UV2 Adbrite 4,1% 4,9% 0,5% AOL 1,9% 6,5% 5,7% DoubleClick 9,1% 29,9% 48,0% Google 71,4% 41,6% 15,8% MSN 6,6% 6,3% 12,8% Yahoo 4,7% 7,3% 16,5% Market shares of main online advertisers in relation to website traffic 1 Number of advertisers Traditional advertising market Banner Market Text ad market Ad budget per advertiser Google acquired DoubleClick to gain an expertise (display) and global market shares (highly popular websites) 2 Unique Visitors Google « moves up » the long tail of advertisers 8 To position itself on the banner market To reach for highly popular websites
  • 16. December 2008 • Everything you always wanted to know about Google… • ..……. 16 Why doesn’t Google monetize all of its services? Some Google services are free of charge and monetized through advertising : Blogger: blog creating tool Google Health: service for managing and storing personal medical information GoogleNews: personalized mash-up of news articles and summary Picasa: photo sharing service Google SketchUp: 3D model creating tool Goog-411: phone information service … Google global strategy allows strong indirect monetization of its products Tools designed to generate audience are made available Products specifically developed to improve other Google products Attract new customers through loss leaders Monetization of blogs created on Blogger through AdSense or FeedBurner Google 411 created to better the video indexing on YouTube Picasa devised as a loss leader towards other Google products These services are actually indirectly monetized : 9
  • 17. December 2008 • Everything you always wanted to know about Google… • ..……. 17 How does Google capitalize on Open Source developers work ? Google encourages development of open source applications: Through support of Open Source community, Google pursues 4 objectives: Increase of total Internet traffic •New applications create new uses, leading to increased total traffic Promotion of a more « open » Web •Increasing the interoperability multiplies network effects1 •Opensource is becoming an advantage to attack proprietary code strategies Assembling a free public relations team •Developers’ chats are a very effective public relation tool Development of Open Source langages used by Google •The number of available Open Source codes encourages the emerging of new products •Feedback of Open Source developers helps creating new products Google supports the Open Source community in a spirit of collaborative creation, one of Google’s strategic pillars • Google code: platform designed for Open Source developers Supplied with guides, tutorials, code extracts of Google products • Google Search Code: code search engine Automatic referencing of all code sections that can be found on the Internet • Events created for the Open Source community: Google Summer of Code: grants awarded to Open Source student projects Google Developer Days: seminars dedicated to Google products 1 See Annex 10
  • 18. December 2008 • Everything you always wanted to know about Google… • ..……. 18 How did Google capture the offline advertising market ? Online advertising market accounts for only 8% of the US market1: Google is exploring the offline ad market! 1 TNS Media Intelligence, US advertising market Most offline media (television, radio, press,…) begin to be IP- ready with online versions • Ad transfer from online to offline (YouTube on television) • Entry on traditional offline markets (radio, billboards,…) • Integration of offline techniques (traditional fixed pricing) • Partial adaptation of AdWords onto radio and television Google’s entry on this market anticipates new uses and broadens its offer. Not specifically successful for now… 11 3% 7% 8% 17% 21% 44% Billboards Radio Internet DailyPress News Press Television
  • 19. December 2008 • Everything you always wanted to know about Google… • ..……. 19 Why is Google stealing our voices? In 2007, Google launched Google Voice Local Search in the United States, a free and automated phone directory service : Google is creating a database of phonemes, recorded during calls in order to better its speech to text1 technologies: What is the business model of this free and ad-free service ? Creation of a phoneme database Development of « speech to text » technologies Indexing of YouTube audio tracks Indexing of all audio/voice sources Externalizing tasks onto users (« crowdsourcing 3») is a commonly used process by Google to improve its products. 1 Converting oral information into text 2 First experiments with political videos posted during the presidential campaign of 2008. 3 Neologism created in 2006 by Jeff Howe and Mark Robinson, Wired magazine editors 2 Bla bla bla 12
  • 20. December 2008 • Everything you always wanted to know about Google… • ..……. 20 Is PageRank a really competitive advantage ? (1/2) PageRank is Google’s link analysis algorithm that measures the probability that a page will be relevant to user’s query : Based on the correlation between the amount of links towards a page and their relevance It accounts for the notoriety of the sites that link to the page in question PageRank’s simplified formula is : (A page’s (u) PR is the sum of all PRs of pages linking to u (v), divided by the respective number of outbound links contained in pages v) Google1 claims that PageRank is one of its search engine’s main competitive advantage : 1 http://www.google.fr/why_use.html A « champion of democracy » The search engine’s « cornerstone » A tool unlikely to be tampered with 13
  • 21. December 2008 • Everything you always wanted to know about Google… • ..……. 21 Is PageRank a really competitive advantage ? (2/2) A tool that can’t be tampered with? Sale or exchange of famous website links (webringing) Search Engine Optimization1 techniques PageRank is only one of many Google’s search competitive advantages. It is certainly not the main entry barrier to competitors on the search market. 1 Set of techniques aiming at improving a site’s referencing on a search engine. Scalable architecture Quick/simple queries Relevance guaranteed by 200 other criteria • Capacity of increasing/ growing according to the volume of indexed pages and number of queries • 2 millions servers by 2008 • Clear query interface • Simple and quick presentation of results • The search engine’s algorithm was subjected to 450 modifications in 2007 An outdated technology? Launch of search engines that don’t use tools such as PageRank (Cuil, Powerset) Google’s search engine success relies on other factors : 13
  • 22. December 2008 • Everything you always wanted to know about Google… • ..……. 22 How does Google turn advertising into information and performance?(1/2) « Advertising income often provides an incentive to deliver poor quality search results» Sergey Brin & Larry Page • Influence results by making paid for clients appear first • Example: Opentext/Kelkoo • Little or non-existent targeting • Large size adverts • Slows down results display from a search engine query Weak relevance • Impossible to reward efficient advertising • Example : television ads • No direct measure of real performance • Example : invoicing according to the number of displays (CPM) Most advertising models present strong weaknesses Strong intrusion Undefined performance 14
  • 23. December 2008 • Everything you always wanted to know about Google… • ..……. 23 14 How does Google turn advertising into information and performance?(2/2) Displays advertising Most relevant ad defines Quality Score Direct impact on advertising value Qualityscore measures the relevance of the ad and is determined by the click throug rate on the ad. It impacts the display rank and Cost per Click: • Rank: relevant ads are pushed up, non relevant ads do not appear • Cost per click of the ad : performant ads are charged less Relevance For the user Total cost of the advertising campaign is determined by the number of clicks on the ads and not by the number of displays. Google’s advertising model benefits the user (improved relevance) as well as the publisher (performance based billing & rebates) Less relevant ad Performance For the advertiser
  • 24. December 2008 • Everything you always wanted to know about Google… • ..……. 24 Google : the network circulation value creation model Traditional value creation Eg : Microsoft Network value creation Eg : Google Customer products $ Server Products $ The global value of the company relies on independent lines of products/business units Gmail Youtube Partners The global value of the company relies on traffic between network parts (proprietary or partners) Business Products $ Entertain ment $ Search engine Apps Apps $ $ $ $ $ $ $$ $ $
  • 25. December 2008 • Everything you always wanted to know about Google… • ..……. 25 Going further : are Google’s key success factors limited to Google • Our conviction : Every company innovating in the digital industry must address and capitalize on the 6 identified key success factors to perform on digital markets. • Our proposition : faberNovel proposes to align companies strategy, development projects and existing products with these factors to ensure success optimization and market performance. Download our comprehensive White Paper « Google’s key success factors » http://www.fabernovel.com
  • 26. December 2008 • Everything you always wanted to know about Google… • ..……. 26 Annex • Definition : network effects • Definition : two-sided market • Pricing of a two-sided market • Glossary • Financial datas • Acknowledgement • Contacts
  • 27. December 2008 • Everything you always wanted to know about Google… • ..……. 27 What is a network effect? • A network effect describes how a service becomes more valuable to its users as more people use that same service Phone’s utility is limited if the network is composed of 2 users The utility for a user raises if the network broadens According to Metcalfe’s law, the utility(U) of a network is proportional to the square of the number (n) of its users U ≈ k*n2 Network effects creates critical masses of users. They represent significant barriers to entry for competitors.
  • 28. December 2008 • Everything you always wanted to know about Google… • ..……. 28 What is a two-sided market? • A two sided market consists of a platform allowing 2 groups of clients/providers to interact and which optimizes the revenue distribution among these groups with the objective of maximizing market sizes. Exemple of the video game market Network effects in action Side A Developers Side B Consumers Price A Price B • Utility to a new developer increases as the community of developers grows (shared knowledge) • Utility to a new consumer increases as the community of consumers grows (secondhand market) • A potential market for a developer gets bigger as more consumers enter the said market • The number of games available to the consumer increases with the number of developers working on the platform Internal effects Crossed effects Internal network effects Crossed network effects
  • 29. December 2008 • Everything you always wanted to know about Google… • ..……. 29 Pricing of a two-sided market Side A Price A > 0 Platform1 • The platform may charge a side • Example 1 : Apple Appstore charges developers by taking a revenue share on sold applications • Example 2 : Microsoft makes consumers pay for video games • … or subsidize a side • Example 3 : Google Android finances developers through a contest • Example 4 : Youtube finances video content providers Face A Price A < 0 Platform1 1 Provided the sum of price A + price B is a fixed figure, a platform financing a group automatically charges the other group and vice versa Who should you be charging? Who should be subsidized? The platform must subsidize the groupe that is most price-sensitive and charge the group that is most sensitive to the other group’s size.
  • 30. December 2008 • Everything you always wanted to know about Google… • ..……. 30 Financial data (1/2) Revenues and Net margin (M$) 2002 2003 2004 2005 2006 2007 100 106 399 1465 3077 4203 439 1466 3189 6139 10604 16594 Revenues Net margin CAGR Net margin 02-07 : 112% Revenue distribution/activity (B$) CA 2007 65% 34% 1% 10,6 5,8 0,2 Licences and other revenus Partner websites (AdSense) Google web sites 16,6Total Source: Google financial tables 2007 2 : calculated as Traffic Acquisition Cost/Google Network web sites revenues CAGR Revenues 02-07 : 107% Net margin’s growth outperform revenues’ growth Most of Google’s revenues still come from its own websites Advertising revenue share to partner web sites is increasing2 and is the highest of the market 78% 2005 2006 2007 79% 85%
  • 31. December 2008 • Everything you always wanted to know about Google… • ..……. 31 Financial data (2/2) 2005 2006 2007 6,1 10,5 16,4 Traffic acquisition costs Advertising revenues 2,1 3,3 4,9 34,9% 31,5% 30,1% 2005 2006 2005 2006 2007 6139 599 9,0% 10604 1229 11,0% 16594 2120 12,0% Turnover R&D investments High R&D investments +88%/year between 2005 and 2007 Data center costs are under control In Billion $ : +26% 2006/2007 (vs +72% revenues) Controlled traffic acquisition costs 34,9% of advertising revenus in 2005 vs 30,1% in 2007 Source: rapport annuel Google 2007 + 26% 1,9 2,4
  • 32. December 2008 • Everything you always wanted to know about Google… • ..……. 32 Glossary • API : application programming interface. Standardized programming protocol allowing applications to communicate • Internet Backbone : main trunk connections of the Internet, made up of a large collection of interconnected high-capacity data routes and core routers that carry data across the countries and continents • Crowd sourcing : act of outsourcing a task to users • Data center : facility used to house computer systems and associated components • O.S. : operating system • Overlay ad : clickable text advertising displayed on a video • Scalability: property of a process, which indicates its ability to handle growing amounts of work easily • Search Engine Optimization : process of improving the volume and quality of traffic to a web site from search engines via natural search results (as opposed to paid search results) • Speech To Text : technology converting spoken words to machine-readable input such as text • Walled Garden : closed or exclusive set of information services provided for users by a network or portal
  • 33. December 2008 • Everything you always wanted to know about Google… • ..……. 33 Acknowledgements To faberNovel contributors : • Amaury de Buchet, VP Consulting • Cyril Vart, VP Strategy & Development • Alexis Arquié, Junior Project Analyst • Mounir Fassouane, Junior Project Analyst To the bloggers : • Olivier Ertzscheid from affordance.typepad.com/ • Google Operating System : googlesystem.blogspot.com/ • Richard MacManus from readwriteweb.com/ • Techcrunch.com & Mobilecrunch.com/ • Frédéric Cavazza from fredcavazza.net/
  • 34. December 2008 • Everything you always wanted to know about Google… • ..……. 34 Stéphane Distinguin Founder and CEO stephane.distinguin@fabernovel.com Cyril Vart VP Strategy & Development cyril.vart@fabernovel.com Pierre Fremaux Project Analyst pierre.fremaux@fabernovel.com Matthieu Lecomte Junior Project Analyst matthieu.lecomte@fabernovel.com Tél. : +33142722004