Background Information on Google
Google Inc. is an American internet and software company built around a search function. Google hosts and develops a number of other internet based services and products and has acquired a large number of firms in order to maintain control over internet users. Google was founded by Larry Page and Sergey Brin at Stanford University in 1998. In 2012 a study estimated that there were 33,077 employees working for Google. The year before the company was valued at US$ 37.905 billion.*1
History of Google:
Legal Barriers to Entry
Within the online services business, Google has control over a huge number of other products and is most well-known company of their kind. Google mainly uses patents and acquisitions in order to keep others out of their industry. Throughout the years Google has been acquiring companies in order to keep them out of their industry along with others in the business like Bing and Yahoo. In recent years Google’s acquisition of Motorola increased their patent block by 17,000. Although Google has not released the amount of patents which belong to them, it is projected that they have hundreds of thousands. Google’s position in the industry is extremely highly regarded and monopolistic. It is said that, “Google upholds the position as the dominant search engine in the world, with 65 percent of the total search market.”*2
On top of patented products, what keeps consumers coming back to Google is their competitive ability to develop infrastructure that guarantees clients fast and efficient services such as search, video streaming, maps, news, translation, advertising and much more. These services expand to meet the needs of the online community. Google strength lies in its constant state of rapid growth and adaptation, “Google's advantage over competitors is its rapid speed.”*3
Google’s main claim to fame is its branding. Google has become one of the largest and most well-known companies in the world with zero advertisement. Google's popularity has been established solely from word of mouth over the years. This is an important aspect as to how Google has branded themselves. This strong brand name is another significant barrier to entry against competing companies because it is so hard to enter into a market where everyone knows and likes the product they currently use.
Control of Essential Resources:
Google’s innovative and top notch services continually adapt to what the online community desires. They have made it clear that their intellectual capital and programmers are the secret formula behind their success. The infrastructure that Google has created over the years can be credited to their programming team, who have become known as the best in the industry. Another essential resource which proves noteworthy is Google’s ever growing list of acquisitions. There are too many acquisitions to list but below there is a link which states all acquisitions since 2001. These acquisitions are essential to Google’s online dominance. In acquiring different sorts of companies, Google is able to use patents in which they couldn't use before. With each acquisition they acquire more intellectual capital and more patents.
Google’s revenue is derived from practices which completely ignore typical business strategy. Much like Facebook they provide top notch services for free, in order to gain high traffic. They then advertise to this massive base of users; ads are the foundation of Google’s profitability*4. They obtain and even create advertising space in the following ways.
AdSense is a free program that lets online site publishers earn revenue by displaying ads on a wide variety of content. Google takes advertisements and chooses which ones should go on which sites, paying site owners based on traffic.
Adwords sells the advertisements that show up beside search results. Advertisers pay per click and can choose where their ad appears.*5
Google acquired Double Click, an online “advertising serving” service, in 2008. Google charges a commission to takes ads and distribute them onto sites that they have contracts with. They pay these sites a portion of the revenue. Sites will chose this over independent advertising contracts because it is more consistent and reliable. They also provide users with the ability to make their own ads. Includes Adsense but adds on data management service for site owners.*6
Google has continued to expand the number of web properties they own and has consequently increased ad space available for sale. They own many websites including Youtube, Blogger, Deja, ect. They have also created advertising spaces through their own products such as Gmail, Google maps and many other Google services. All of these are heavily used and are therefore valuable advertising assets.*7
Google has also focused on presenting its ads in a discrete way which separates them from other internet ads. In a Google search the ads are displayed in a very similar format to that of the normal search results. Take a search for books for example:
The first result that appears is Apple’s bookstore, then a Wikipedia explanation of what a book is and then Google’s free book library. The ad for Apple is very similar to the rest of the links. It is highlighted and identified as an ad but it has the same font, format and size as all the other links on the page. This establishes the ad as a viable source instead of a distraction. The sense of viability of the ads is strengthened by the fact that the viewers are searching for what they see ads about.
Has the Company been able to maintain its monopoly power?
Google’s constant innovation and many acquisitions keep users on their sites and subject to their advertisements. The have a huge patent bases allowing them to access premium building blocks for their sites, they have the best intellectual capital and the most competitive advertising pricing strategy. These three elements allow them to hold their monopoly over others in the industry.
In text citations:
*1 "Google." Wikipedia. Wikipedia, 13/04/2012. Web. 13 Apr 2012. <http://en.wikipedia.org/wiki/Google>.
*2 "How Google Maintains Its Competitive Advantage."Smart Advantage. Smart Advantage, 31/03/2010. Web. 13 Apr 2012. <http://blog.smartadvantage.com/competitive-advantage-blog/bid/44872/How-Google-Maintains-Its-Competitive-Advantage>.
*3 See *1
*4 Moran, Mike. "What's Google's Stragety." Biznology . N.p., 2008. Web. 11 Apr 2012. <http://www.biznology.com/2008/03/whats_googles_strategy/>.
*5 "AdWords overview." Google Support. Google, 2012. Web. 12 Apr 2012. <http://support.google.com/adwords/bin/answer.py?hl=en&answer=1704410&topic=1713894&ctx=topic&path=1710534>.
*6 "DoubleClick by Google." . Google, 2012. Web. 11 Apr 2012. <http://www.google.com/doubleclick/>.
*7 See *3
*8 Screenshot on Google search for books. <https://www.google.ca/search?sourceid=chrome&ie=UTF-8&q=books>
- Googlopoly: http://www.fanboy.com/wp-content/uploads/2010/03/googleopoly.jpg
- Copyright Sign: http://www.copyrightauthority.com/copyright-symbol/Copyright-Symbol-images/Copyright_symbol_9.gif
- Screenshot: https://www.google.ca/search?sourceid=chrome&ie=UTF-8&q=books