Google’s Business Model

Google’s Business Model

Describe Google’s business model. What strategies has Google relied upon to build competitive advantage in the industry?

The Google business model is one built around its primary business of licensing fees for supplying search functions to corporate clients and content-targeting advertising. The company utilizes its popular internet search engine to match Google advertisers with Internet users. It targets advertising to search results which are more likely to attract potential customers. The Google philosophy to “do one thing really, really well” , its search function, has built its loyal customer base and its success has enabled Google to enhance the features it offers to more than just search. Google competitive strategies are aimed squarely at holding and increasing their core customer base, internet search users and advertisers, and building on their dominant position as the search engine of choice by broadening the number of products that they offer.

The Google Search Engine

Designed to help people retrieve information from either a computer network within an organisation or the World Wide Web, Google’s search engine differs from prior engines in that it sorts information by a ranking of relevance. This relevance is determined by the number of times other web pages refer users to a particular webpage to find their requested information. An uncluttered and clear user interface simplifies the search function. Users are able to get fast and more relevant results to their search queries. This initially helped to form the competitive advantage which Google once held over its rival search engines, since imitated by Microsoft with its MSN Search. The relative ease of the search interface for internet search users has helped to place Google firmly in the position as the current US market leader, as shown in Table 1.

Table 1: Top 4 Search Providers for May 2007, Ranked by Searches (U.S.)

Source: Nielsen//NetRatings MegaView Search, June 2007

Search Provider

Internet Searches

(000)

Year On Year

Growth

Share of

Searches

1. Google Search 4,033,277 44.9% 56.3%

2. Yahoo! Search 1,540,949 18.6% 21.5%

3. MSN/Windows Live Search 605,400 0.8% 8.4%

4. AOL Search 381,961 5.1% 5.3%

The Google search engine and the business model

Google built its original business as a search engine with a web based BETA version operating on the internet in 1998. It raised its initial venture capital from investors and began to license the search functionality to business customers to use within their own computer networks for data retrieval. Within two years it had become the most popular internet search engine and in 2000 it introduced keyword targeted advertising (Gamble, 2005, C-314). Automated Google tools such as AdWords have enabled advertisers to easily create text ads, pay and measure results for their advertising.

Initially, like many Silicon Valley start-up companies, Google’s structure was organic, in keeping with the technology driven nature of the business. Hierarchical structures were blurred and indistinct. Creativity was central to the business in this establishment phase. Eric Schmidt, former Novell CEO, was persuaded by Larry Page and Sergey Brin to join the company as the third member of the triumvirate which would take Google’s business into a more refined and less chaotic phase. Corporate structure was introduced, staffing levels expanded and the company was launched. More mechanistic approaches were needed to reassure shareholders.

The continued popularity of the Google search engine has ensured a strong advertising revenue stream. In 2007, advertising revenue accounted for the bulk of total revenue generated. Less than 1% was generated from licensing fees. The creativity which originally characterised the product seems to have diminished somewhat.

Google increasingly looks to acquisitions as a source of new technological competitive advantage.

Google competitive advantage

Initially, Google search engine technological superiority was the central part of Google’s industry competitive advantage. However, as time