Google's Business Model

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In 2006, the verb ‘Google’ was added to the Merriam-Webster Collegiate Dictionary and the Oxford English Dictionary, denoted as “to use the Google search engine to obtain information on the Internet.” In this article, we will look at an 1) introduction to Google, 2) business model, and 3) business segments and products.

INTRODUCTION TO GOOGLE

Google Inc is a technology company based in Mountain View, California. The company began as an internet search engine but has since become a technology giant that offers over fifty products and services. These include email, online document creation, software, cloud computing, online advertising technologies, mobile phones and tablets computers among others. The search engine is the most successful one on the internet, handling more than 70 percent of all online search requests.

The company was created by two then PhD students at the Standford University, Larry Page and Sergey Brin, in 1998. The two own 14 percent of the shares together but have voting power through a supervoting stock. The company began with a mission statement to “organize the world’s information and make It universally accessible and useful.” An unofficial slogan is said to be “Don’t be evil.” The company was incorporated in September 1998 and moved to its current headquarters location in 2004.

Google has been listed by Alexa as the most visited website in the world. The top hundred most visited sites are also peppered with google websites, both local Google language sites and other sites such as Blogger and Youtube that Google owns. To run its giant portfolio of services, Google is said to have more than 1 million servers in data centers all around the world. These are necessary since the company needs to process over 1 billion search requests and over 24 perabytes of data generated by users every day. Despite this massive portfolio, the company’s core strength remains its search engine and in 2011, the company earned 97 percent of its revenue through the advertising that is based on users’ search requests.

The size of the company and its vast product portfolio makes in one of the top four most influential technology companies in the world, keeping company with Apple, IBM and Microsoft. Because of the company’s market dominance and success, it is often in the public eye through media coverage including criticism regarding key issues such as copyrights, censorship and privacy.

By 2013, the company had 70 offices in over 40 countries. In October 2014, Interbrand ranked Google as the second most valuable brand in the world, following Apple.

History

The Beginning

The basis for Google was laid in January of 1996. It began as a research project for two PhD students at Stanford University. These students were Larry Page and Sergey Brin. At that point, web search engines would rank returned results based on the frequency of the inputted search terms on a page. Page and Brin took the task of coming up with a better system to analyze the relationships between web pages. This system was named PageRank by the two. This system went beyond the basic process of counting the number of search terms to determining the relevance of a search result page by the number and importance of the pages that linked to this page.

Since the search engine explored backlinks to rank the importance of a website as a search result, the two founders gave it the name BackRub. This name was not much of a success and eventually the name Google was agreed upon. This came about as a misspelling of the word googol. Googol means a number 1 followed by one hundred zeros and was chosen to represent the large amounts of data and information the search engine would process. Before the domain name for the website was registered officially in September 1997, it ran under the Stanford University website. The company was incorporated in September 1998 and the office was set up in a friend’s garage in Menlo Park, California. Another fellow PhD student was hired as the first employee. The company continued to grow and by 2011, the site reached one billion unique visitors per month. In 2012, the company earned annual revenue of US$50 billion for the first time.

Funding and IPO

The company received its first funding from Andy Bechtolsheim, a co-founder of Sun Microsystems. The funding worth US$100,000 came before the incorporation of the company. Page and Brin attempted to sell their website to Excite for US$1 million in 1999 because they felt that it was distracting them from their PhD work. They were turned away and went on to secure $25 million in funding from major investors. These included venture capital companies such as Kleiner Perkins Caufield & Byers as well as Sequoia Capital. The company’s IPO took place five years later. 19,605,052 shares were offered at $85 per share. Morgan Stanley and Credit Suisse were the underwriters for the deal and also designed an online auction system for the shares sale. The sale was worth $1.67 billion and gave the company market capitalization worth $23 billion with this figure growing to $397 billion by 2014.

The company retained control of the majority of the shares. There were misgivings that the IPO would have an impact on the company’s culture through issues such as shareholder pressure to reduce employee benefits and the sudden millionaire status of many executives on paper. The founders addressed these concerns and assured potential investors that the company culture would remain intact. To ensure that this continues to happen, the company has a designated Chief Culture Officer. This role is served by the Director of Human Resources and the purpose is to ensure that the culture and way of work is developed and maintained and kept true to the core values that formed the basis for the company. Over the years, there have been concerns and suggestions that the company has lost its anti-corporate and no evil way of thinking as well as some allegations regarding sexism and ageism from former employees.

Further Growth

By March 1999, the company shifted to an office in Palo Alto, California. The eventual move to the Googleplex in Mountain View, California happened in 2003, when the company outgrew other locations. Other well-known Silicon Valley tech startup companies also had their offices in the city. Though initially opposed by the founders, the company began its sale of advertisements based on keywords in the following year to form the basis of an advertising-funded search engine. The advertisements remained text only to ensure that the page remained uncluttered and quick. This model was first created by another company which sued Google for infringement. The case was settled out of court with Google issuing shares of common stock in return for a license.

History of Google – The Full Story of Google Company – Full Documentaries

 

BUSINESS MODEL

The Google Inc business model can be seen more clearly when divided into some key areas:

  • Key Partners: Key partners for Google include suppliers, distributors, the Open Handset Alliance and original equipment manufacturers.
  • Key Activities: Key activities include research and development for both the development of new technologies and features and the improvement of existing ones. There is also significant time spent in the maintenance and management of massive IT infrastructures and products and services. Apart from this, there is work done on marketing, strategy and alliances.
  • Key Resources: Key resources for Google would include datacenters, servers and other IT infrastructure, IPs as well as the human resource. Other resources include patents, licenses and proprietary material.
  • Value Proposition: The company aims to create value for its customers for internet search, advertising, operating systems and platforms and enterprise. The overarching principle is drawn from the mission statement which is to manage the world’s information and make it universally accessible and useful.
  • Channels: Channels to reach customers include google.com, google affiliate websites and google Adwords. Channels to reach advertisers and network members include sales and support teams.
  • Customer Relationships: Channels to build customer relationships can include sales and support services as well as dedicated teams for larger customers.
  • Customer Segments: Google has three main customers. The users who are able to organize information in useful ways using Google products and services, the advertisers who have a cost effective way to display online and offline ads to customers and Google Network Members and Other Content Providers who use the adsense service. Other extended segments can include mobile device users and makers as well as developers.
  • Cost Structure: Primary costs for Google include the IT infrastructure, people, R&D costs and marketing costs.
  • Revenue Streams: The primary revenue stream for the company remains its ad-powered search engine. This amounts to as much as 96 percent of all revenue.

BUSINESS SEGMENTS AND PRODUCTS

Google has an immense portfolio of products and services under its umbrella. A complete list of these can be found here and here.

Some major products, which can be seen as business segments, include the following:

Advertising

Advertising remains the primary focus for the company and brings in the most revenue. In 2006, the company made over $10 billion in total advertising revenues while other streams brought in only $112 million. By 2011, 96 percent of total revenue was coming in from advertising related programs and activities.

Advertising Products and Services

Some popular advertising products and services include:

  • Google Analytics: This product allows owners of websites to keep track of visitors to their sites and how people use them. One way of measuring is through examining click rates for links on page.
  • Adwords: This product helps advertisers display advertisements in the Google content network. This can be done in a few different ways such as cost-per-click or cost-per-view.
  • Adsense: Adsense is a related to Adwords and this product can be used to help website owners display advertisements on their own website. The owners can then earn money from clicks on these ads.

Search Engine

The search engine is the primary business for the company and also earns its highest revenue. The search engine was ranked the top search engine in the US in 2009 and received 65 percent of all search engine visitors. The search engine indexes web pages by the billions to allow users to access information through keyword inputs. The search uses Google’s PageRank algorithm to refine search results.

Search Engine Products and Services

  • Google Books: The search engine hosts Google Books where the company scans books and offers limited previews for these. Where copyrights are not an issue, whole books are also on offer. These are available in the book search engine. Digital versions of new books are also sold.
  • Special Searches: Other searches include options to search for scholarly articles, blogs, news stories, images and videos as well as the ability to analyze past and current trends. There is a special search option as well where a search bar can be placed on a website to search through the contents of that website.

Productivity Tools

A major product group for Google is productivity tools. These include:

  • Gmail: Gmail is a free web based mail service offered by Google. The service launched as an invitation only one in 2004 and eventually opened to everyone by 2007. By 2009, the service had 146 million users. Gmail was the first service to offer 1GB of free storage space as well as the option to keep conversations in one thread. At present Gmail allows users over 15 GB of free space as well additional storage available for a small fee. The service uses a special technique to allow the webpage to remain interactive without the need to refresh.
  • Google Doc: Google documents is a free office package that offers users the ability to create, edit, share and collaborate on work. The documents are all online and can be downloaded. This service also allows users to create forms and surveys.
  • Google Drive: Google drive is an online storage service offered to Google users.
  • Google Calendar: Google calendar is also a service which can be synced across different Google platforms.
  • Google Translate: Google translate is a free translation service. It provides instant translations for dozens of languages. The service translates single words and also entire webpages.
  • Google Code: Another initiative is the Google Code. This is an open source hosting software project hosting where developers can download incomplete programs for no cost.

Enterprise Products

Some enterprise products include:

  • Google Search Appliance: The Google Search Appliance is a rack-mounted device. This device provides document indexing functionality and this can be integrated into an intranet, document management system or a website. This service was launched in 2002 for larger organizations and in 2006 for smaller ones. Later that year, a Customer Search business edition was also launched which gave an advertising free access to Google.com’s index. This became Google Site Search later on.
  • Google Apps: Through Google Apps, Google’s product offerings can be brought to other domains. There are basic free editions as well as Google Apps for business, education and government.

Other Products

Some other basic Google products include:

  • Google News: This service began in 2002 as an automated service that summarizes news items from multiple websites.
  • Google Fiber: The Google Fiber project began in 2010. The plan was to create an ultra-high-speed broadband network in a few American city. Kansas City was chosen as a pilot project, and the project was completed in 2012.
  • Google Phones and Android OS: Google launched Android in 2007, a mobile phone operating system. Google acquired the OS as an open source software and allows developers to use a software development kit to develop applications. Google also released a phone called the Nexus One.
  • Google Chrom: Google Chrome was announced in 2008 as an open source web browser. In 2009 Google Chrome OS was launched which as a Linux based operating system. The OS only supported a web browser to be used for logging people into their online Google accounts.
  • Google Goggles: This is a mobile application for Android and Apple iOS. It is used for image recognition and image based searches. The application can identify historic landmarks, scan business cards and even solve puzzles.
  • Google Wallet: A mobile application for wireless payments was announced in 2011, called Google Wallet.

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