Google Final Draft With Kts

Joseph Teye-Kofi
Mgt 224: Research Report: Google, Inc.

Alerts Answers Catalogs Directory

Froogle Groups Images Google Labs

Local News Search Scholar Special Searches

University Search Internet search Wireless

Google, Inc. Industry: Computer Services

May 6, 2005 Microsoft Word

Blogger Browser Buttons Google Desktop Search Google in your Language

Keyhole Picasa Photo Organizer Google Toolbar Translate Tool

Web APIs

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GOOGLE: AN INTERNET SEARCH SERVICE COMPANY IN THE COMPUTER
SERVICES INDUSTRY
INTRODUCTION
In February of 2005, almost six months after Google’s initial public offering (IPO) of
stock, CEO Eric Schmidt announced the need to develop an effective company-wide strategy in
order to brace for the next level of services and products Google wanted to offer to stay ahead of
the competition. In the last quarter of 2004, Google’s operating income totaled $321 million,
versus $322 for nine year old eBay and $260 million for ten year old Yahoo. As an industry
market share leader, the overall task at hand was to develop an effective differentiating
enterprise-wide strategy especially for the company’s internet search segment, enabling Google
to survive and prosper against aggressive competition in the intermediate and long term future.

The company generated revenue by delivering relevant, cost-effective online advertising.
Businesses used the company's AdWords program to promote its products and services with
targeted advertising. In addition, the thousands of third-party Websites that comprised the
Google Network used the Google AdSense program to deliver relevant ads that generated
revenue and enhanced the user’s experience

As shown in Figure 1, Google had many tools and provided many services. Here,
common terminologies in internet search are defined for clarity. A web browser is a program
used for displaying and viewing pages on the World Wide Web. A search engine is computer
software that compiled lists of documents, most commonly those on the World Wide Web, and
the contents of those documents. A blog is an easy-to-use web site, where people can quickly
post thoughts and interact with other people, and more. Browser buttons let the user search the
Internet simply by highlighting a word (or phrase) on any web page and clicking the Google
Search button.

Figure 1
GOOGLE’S TOOLS AND SERVICES
TOOLS SERVICES
Blogger Alerts
o o
Browser Buttons Answers
o o
Desktop Search Catalogs
o o
Google In Your Language Images
o o
Picasa Photo Organizer News Search
o o
Google Tool Bar Internet search
o o
Translate Tool Wireless
o o

As for tools, Google’s desktop search allowed users to find email, files, web history and
online chat on your computer offline. It allowed users to instantly view web pages, even when
not online. Adding Google Browser Buttons to a personal toolbar granted access to Google's
search technology, without taking up extra screen space. “Google in your language” was a tool
that intended to use volunteers to translate all of the world’s languages into a database that could

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be utilized by users of the service. Picasa photo organizer was a free software download from
Google that helped users instantly find, edit and share all the pictures on a personal computer.

As for services, Google alerts were email updates of the latest relevant Google results
(web, news, etc.) based on users’ choice of query or topic. With Google answers, more than 500
carefully screened analysts in various fields of study were ready to answer questions online for
as little as $2.50 usually within 24 hours. Google catalogs allowed patrons to search and browse
mail order catalogs from various companies online. Google image search allowed users to
search for images online. Just type in the name of the image and a vast array of specific images
were displayed as requested.

Google news allowed users access to over 4,500 local and international news sources
updated continuously. Google’s wireless adaptable search technology can be accessed from any
number of devices, such as mobile phones, Palm VII handhelds. Whatever the language or
platform, Google lets you search the web with ease, speed and accuracy.

Google’s main strength was the fact that it had established itself using superior internet
search technology. It had also made phenomenal strides in the international arena. Moreover the
company’s successful IPO gave it the financial leverage needed to expand and easily become an
independent and large web portal. A portal or portal site is a computing home site for a web
browser: on the Internet, a web site that provides links to information and several other web sites.
Portals are internet hubs more like the Grand Central station as a transport hub in New York
City. They serve as a connection or link to several other places that might be of interest to web
users. Google’s raw materials are the technical proficiency and innovativeness of its employees.
The question remained whether or not Google should continue primarily as an internet search
engine or morph into a large web portal.

Google’s major weakness was the fact that there were virtually no switching costs in the
industry and internet search users would try another search engine if they did not find what they
were looking for using Google’s search technologies. Microsoft’s next version of the windows
system, codenamed “Longhorn”, presented a potential threat to Google’s services. Slated for
release in 2006, Microsoft’s Vice President was quoted as saying “Google is a very nice system
but compared to my vision, it is pathetic” [Dudley, 2003]. Moreover, Microsoft had all the
funding needed and, if it focused on internet search technology, was bound to vanquish a lot of
big players in the internet search segment. The main problem to be resolved was how to further
differentiate Google’s internet search segment from its competition and to achieve a winning
edge over competitors within an intensely competitive, rapidly changing immediate,
intermediate, and long-term time frames.

OVERALL INDUSTRY DESCRIPTION: COMPUTER SERVICES INDUSTRY

The computer services industry included companies that provided services related to
computers and other information technology, including consulting, distribution, installation,
maintenance, and support. It was divided into four segments: Application Service Providers,
Computer Products Distribution & Support, Technology Leasing, and Information Technology

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Services. One defining characteristic of this industry was its fast pace with regards to innovation
and product transformation and development. Brand name recognition was important in this
industry and a good product or service could be quickly popularized using simple word of
mouth. The industry was also motivated by the buzz in virtual online chat rooms all across the
World Wide Web. For example, internet users in Africa could get consumer reviews on the
latest gadgets released in Japan instantly.

According to Hoovers.com, Google was categorized under the computer services industry
as an information technology service provider. Segments of the computer services industry are
shown in Figure 2.

Figure 2
COMPUTER SERVICES INDUSTRY

COMPUTER
SERVICES

APPPLICATION COMPUTER INFORMATION
SERVICE PRODUCTS, TECHNOLOGY TECHNOLOGY
DISTRIBUTION SERVICES
PROVIDERS LEASING
AND SUPPORT

APPLICATION SERVICE PROVIDERS

This segment consisted of companies that designed, developed, and supported software
through networks including local-area and wide-area networks (LANs, WANs), wireless
networks, intranets, extranets, and the Internet. Most of the companies that manufacture
computer accessories and peripherals fall in this segment of the computer services industry.

COMPUTER PRODUCTS DISTRIBUTION & SUPPORT

This segment comprised companies that distribute, supply, and support computer
systems, software, peripherals, network equipment, and other products. Outlets that fall in this
segment included electronic and computer stores that help distribute and market computers,
software, and all related accessories and services.

TECHNOLOGY LEASING

This segment consisted of companies that provide computer, information technology, and
research and electronics equipment leasing services. Financing and leasing of business

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equipment to professional, municipal, manufacturing, medical, dental, and veterinary
establishments

INFORMATION TECHNOLOGY SERVICES

This segment of the computer services industry consisted of companies that provided
services related to information technology, such as internet film and video, information
collection and delivery, internet content providers, internet music and downloads and internet
searching services. Google falls under this segment of the computer services industry, which is
the focus of this study. The main components of the information technology services segment
are shown in Figure 3.

Figure 3


INTERNET FILM & VIDEO

INFORMATION COLLECTION & DELIVERY

INTERNET CONTENT PROVIDERS

INTERNET MUSIC & DOWNLOADS

INTERNET SEARCHING SERVICES

INDUSTRY & MARKET SEGMENT: INTERNET SEARCHING SERVICES

Internet search companies were relatively small technology-driven companies that
focused on providing a service that was very central to the internet’s very existence. Search
engines helped an internet surfer get to the very page they were looking for very quickly.
However, tied to search results were contextual ads which are simply ads that provided solutions
to a web user’s search enquiry. Contextual ads have been developed by Google to become a
very effective way of satisfying a web user’s curiosity to embark on a search for something that
they wanted information on. Most internet search incidentally had a commercial motivation. In
other words, the enquirer ended up buying something related to their search enquiry. This new
development led to advertisers flocking to Google’s gates hoping to expand their sales revenues
using Google’s contextual ads. This development, therefore, forced bigger internet portals like
AOL, MSN, and Yahoo to refocus their energies on the cash cow Google had invented- a quality
and reliable search engine.

Advertisers paid search companies on a “cost per click” basis. In other words, advertisers
paid internet search companies anytime an internet search user clicked on its ad beside a search
result. Therefore, internet search users did not have to make a purchase on an ad for an internet

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search company to get paid. This had led to a trend in internet search services where a
fraudulent company continuously clicked on a competitor’s ad beside search results only to
increase their operating expenses from advertising with internet search companies. This new
trend of foul play using search engines ads together with issues of identity theft were some of the
current issues facing internet search services. “Click fraud” was the term used to describe
someone clicking on an ad with an ill intent. A fraudulent clicker could exploit the way web ads
work to rack up fees for a business rival, boost the placement of their own ads or make money
for themselves. Some even employed software that clicks on ads multiple times [Delaney,
2005A].

Internet searching services were provided by companies that own and operate search
engines and other categorized web sites used to find information on the Internet. Despite the
hype, the internet really changed the way business was done and continued to have a big effect
on the economy. Internet search services were hard to avoid in a world that was rapidly
embracing the web as the primary vehicle for information services.

Figure 4
A WEB BROWSER

Source: Google Images (2005). [Online]. http://www.editplus.com/ss/internet.gif Accessed March 18, 2005.

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Three years ago, Yahoo and the other leading Internet portals including AOL and MSN
largely wrote off the search engine business. Developing the way Web user’s plugged words
into a search engine to navigate around the internet seemed like a waste of time and money.
Consequently, they put the brakes on developing their own search expertise and licensed
technology from a small company called Google Inc. Big mistake: The search business boomed,
and Google reaped the benefits. Google currently leads all the companies in the internet search
services segment. Search companies have emerged as the new stars of the internet universe
through relying on an innovative (and successful) way to sell the web using contextual ads
beside search results.

HOW THE INDUSTRY SEGMENT WORKS: THE BUSINESS PROCESS MODEL

The internet searching services segment, as shown in Figure 5, was founded when the
general public finally had access to the internet and wanted to know where to look for things of
interest. In other words, this segment satisfied the curiosities of the internet user. It also
provided web users an immediate link to Autos, Chat, Finance, Games, Groups, Health,
Horoscopes, Maps, Movies, Music, News, People, Search, Real Estate, Shopping, Sports, Travel,
TV, Yellow Pages, and Photos among other things.

Targeted online advertising (search based advertising) remained a goldmine in internet
search business. Still in its infancy, it remained one of the hottest sectors in high-tech, a $5-
billion-a-year market growing at some 40% annually [Vogelstein, 2005].

Google as an example sold its ads or generated revenues primarily in two ways: The ones
that appeared on all its search sites-which span the internet in 104 languages-accounted for the
bulk of its revenues, some $1.5 billion a year. In addition, Google licensed its search and
targeted advertising setup to other sites. For example, visitors to the New York Times or the
Washington Post website were using Google’s search technology and viewing Google generated
ads. Google also placed ads for much smaller media sites commonly referred to as third party
websites which are defined and discussed shortly in this paper. .Google sent several relevant ads
to these third-party web sites and split the revenue generated from ads between the relevant
websites involved based on the number of clicks: A phenomenon in internet search referred to as
“cost-per-click pricing”. Cost-per-click pricing allowed internet search companies to bill
advertisers for any ad that were clicked beside relevant search results regardless of whether or
not the click resulted in a sale. Neither Google nor any of the internet search companies revealed
specifically how much they charged advertisers per an ad clicked even though Google sent
monthly checks based on ads clicked to its third party websites [Vogelstein 2004].

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Figure 5
INTERNET SEARCHING SERVICES SEGMENT BUSINESS MODEL

INTERNET
SEARCHING
SERVICES

SEARCH SITE OWNER CUSTOMERS/ MARKETIING
COMPETITORS
TECHNICAL
RELATED &
SERVICES CLIENTS STAFFING
PROMOTION
SERVICES

SEARCH
ADVERTISING ONLINE
TECHNOLOGY ADMINISTRATION
CLIENTS AOL
SERVICES

BUSINESS THIRD
OTHER
ON-CAMPUS
ADVERTISERS TELEVISION YAHOO
PARTY
SOLUTIONS
SERVICES RECRUITING
WEBSITES

MEMBER
SUBMISSIONS MSN
SERVICES

GOOGLE

SEARCH RELATED SERVICES

The best way to look at this segment was to consider it as the gateway to the internet.
Assume a web surfer was at a loss as to where to find the sneakers he/she saw at the mall last
year but he/she knew the brand name and the model. He/she can first decide to go to the sneaker
company’s website and search for that model or he/she can simply type the sneaker brand and
model in a search pane on a computer’s web browser and click “search”. The search engine
returns a set of results plus links (contextual ads) of that particular brand and model to available
retail stores that sell this sneaker in their stores (shop/stores/online). This process saved a whole
lot of time for a prospective enquirer/buyer while at the same time helping to make the shopping
experience easier and more likely to increase sales for the advertisers who use search engines as
a source of marketing and advertising their goods or services.

Search Services

The main players in the internet search segment were Google, Yahoo (Overture), MSN,
and AOL. Recently, MSN linked their search service to the Encarta Online Encyclopedia which
was updated weekly. For example, if you type “What is the population of Iraq?” in the MSN
search pane, the answer popped up after a few seconds.

The leading internet search companies also offered a free service where links to specific
topics were sent to users’ email boxes as requested. Google’s alert feature satisfied the same
need. The beauty of the internet searching services was the fact that it instituted a high degree of
orderliness in this clustered virtual field we call the internet’s jungle. It helped web users save
time and in the process made surfing an easy task.

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Google, Yahoo, MSN, and AOL also focused on distribution and sale of still images and
multimedia products (1A) as a way of attracting new internet search users. A trend that was
developing in the internet search segment can be referred to as “blogs” and groups where
companies like Google, MSN, and Yahoo set up platforms for internet groups to discuss issues,
post topics, debate and share opinions in a healthy climate (1B). The students at Tobin College
of Business at Saint John’s University in New York have a similar platform for MBA students
called “SJU MBA Group” on MSN where students discussed pertinent issues bordering on
coursework, textbook swaps or sale and even social events in and around the campus. Internet
search companies also offered directory-linked target advertising using a database containing
registered members (1C).

Most internet search companies considered it important to offer dating services, news
reports, and sports coverage (1D). This served as a way to bring more visitors to their websites
hoping they would eventually get acquainted with internet search as an effective way to get
things done. By using internet search, companies believed users would click on the ads placed
beside search results because they offered solutions to search users query. Internet search
companies got paid anytime an ad placed beside search results were clicked. It was the main
source of revenue for typical internet search companies like Google. It represented a $5 billion a
year segment that was growing at an annual rate of 40 % [Eisenmann, 2004B].

Other keys to success in internet search included having a search tool bar installed in a
web browser to facilitate search (1G). A new and free downloadable web browser called Firefox
had recently been made available by a company reportedly affiliated with Google. Compared to
Internet Explorer, it had more inbuilt security features to protect against pop-ups and spy ware:
both crucial antidotes for today’s unsecured wireless networks. In addition, it came already
loaded a with Google search pane.

Internet search companies would have to find ways of licensing search technology
software to major computer manufacturers like Dell Computer Company or Hewlett Packard
(1E). This would ensure potential internet search users have internet search software fully
loaded on their computers right out of the box. A similar strategy was what Microsoft’s
Windows enjoys with all computer manufacturers except Apple Computers. Access to online
catalogs (1F) was another promising area for internet search companies. Google was the pioneer
in this area because it provided online access to most popular catalogs as a way to facilitate
shopping.

Other Services

Web based search companies normally offered other services such as e-mail service, web
based advertising and shopping; online dating services, maps, web publishing, online satellite
maps, online text and library database access, news and sports; online mail catalogs, online
sale/auctions, distribution and sale of still images and other multimedia products (1I-1W).

The opportunities for the industry included an emerging market for contextual
advertising. Contextual ads referred to paid listings that appear, not adjacent to search results,

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but rather on the editorial pages of websites providing news or lifestyle information that was
related to an advertiser-specified keyword. For example an internet search query for “Ford
Mustang” would return information on the car next to a list of available Ford dealerships in the
general area and some used car vendors selling Ford Mustang. Google and other companies with
internet search technologies have an advantage in advertising because they can link keywords to
appropriate editorial pages [Eisenmann, 2004A]. The key to success in this area would be to
improve upon the target advertising capabilities using responses from users of non-search
services (1X).

Moreover, 40% of internet search enquiries had a commercial motivation. In other
words, the user wanted information about a product or a service. [Bartley & Weinstein, 2004A].
The “internet search” business emerged to make money from this traffic. Internet search
generated $2 billion worldwide in advertising revenue in 2003, and was projected to grow at a
37% compound annual rate to $7 billion by 2007. U.S. advertisers were expected to account for
about 70% of worldwide internet search revenue in 2007 [Eisenmann, 2004B]. Advertisers
should continue to generate revenues from contextual ads (1T) in the future because it created
more value for money spent advertising.

Basically, the future product range in this industry seemed endless because it took into
account everything in the database of its clients (1Z). For example, if an internet search engine
(Yahoo search) had all the products carried by its advertiser (Wal-Mart) in its database, it
basically could link every product in Wal-Mart’s database to relevant search enquiries. In other
words, if Wal-Mart agreed to advertise using Yahoo search, and furnished Yahoo with all the
products Wal-Mart carries, then Yahoo can link anything in the Wal-Mart line of products to an
internet search query. The future of this scenario was the fact that companies could narrow
databases down to area code, region and country of the enquirer using directory-linked target
advertising (1AA).

Directory-linked target advertising (1AA) was the motivation behind the internet search
companies drive to register all its patrons, gathering relevant information in the process.
Directory-linked target advertising (1AA, 1BB) referred to a scenario in internet search where
results were based upon previous responses relating to geographical location, personal
preferences and advertising targeted to satisfy all the possible scenarios for the initiator of the
search. For example an internet search result narrows down a search enquiry to the
neighborhood were the search originated plus takes into consideration other factors like available
advertisers in that neighborhood, age gender and personal preference based on previously
gathered information or responses This was the future of internet search services so long as users
felt comfortable registering with their favorite internet search engines in exchange for
confidentiality (1CC). Internet service membership-oriented companies like AOL, MSN, and
Yahoo had an advantage over Google in this area because they already provided most of these
services (1I-1W) to customers who subscribed to their non-search related internet services. A
key to success would be to prevent the identity theft of personal information provided voluntarily
by registered members (1DD).

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SITE OWNER SERVICES

A site owner service referred to a platform that internet search companies and large
internet services companies used to invite potential advertisers to the variety of advertising
packages they offered. It was a grand standpoint for a web based company to stake its claim to
being in a unique position to help businesses advertise and to help them reach a larger audience.
This was the link reserved for potential advertisers looking to do business with an internet search
company like Google, AOL, MSN and Yahoo.

Advertising

The advertising section was categorized under site owner services in the search services
segment. Internet search companies listed the type of advertising services they offered in this
section. This allowed prospective advertisers to determine what type of advertising would best
fit their business needs. For example Google listed all its available advertising packages in this
section. It also lets prospective advertisers know that they would pay Google anytime an internet
search user clicked on their ad posted beside a Google-generated search result. For example a
company that sold computer mice bought the keyword “mouse” with Google so that Google
displayed their ad anytime time someone typed “computer mouse” in a search pane run by
Google. The program tried to mimic the user’s environment as much as possible. Google’s
program could make distinctions with words and their meanings (e.g. quot;mousequot; - animal or
computer pointing device; quot;javaquot; - computer language or coffee). This was something that was
difficult in the past for other search engines to determine.

MSN, AOL, and Yahoo offered relevant “multimedia banner ads and colorful ads” beside
their search results (2A) and on their home page. This was a feature Google was reluctant to
incorporate in its search-based advertising. Google believed ads beside search results should not
be prioritized nor flashy but rather it should be basic and based solely on relevance towards the
needs of the enquirer. In other words, users didn’t see ads on Google’s home page. The only
time users saw ads were after a search enquiry and even then ads were relevant only to the
demands of the search enquiry. Multimedia banner ads and colorful ads beside search results
(2A) are keys to success areas that need to be exploited by all internet search companies.

Business Solutions

Most internet search companies offered business solutions to help start a business and
also to aid well established businesses increase their revenue earning capacity. Services
provided include web site creation: domain names, web site design and business services and
personnel services (2C). Yahoo was the leader in business solutions in the computer services
industry followed closely by MSN. Google did not offer business solutions but was a potential
entrant mainly because it was technically sound and what was needed was to introduce effective
levels of management (2D) to map out the necessary expansionary initiatives in order to
introduce web site development tools for small businesses without falling prey to the problems
most internet businesses face when they grew too quickly as transpired in the early to mid 1990’s
(2E).

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Submissions

This referred to the link where prospective advertisers submitted their advertising plans to
internet search services and agreed to fees based on a contractual agreement to use a search
service to promote and advertise their business enterprise. The key to success here was for
internet search companies to efficiently process submissions from prospective clients wanting to
advertise with search companies (2G). Google’s Achilles heel seemed to be the lackadaisical
manner in which they processed submissions from prospective advertisers. Yahoo and AOL
were more ready to handle submissions because they had the right administrative mechanism
(2H) in place in terms of size to handle large volumes of work efficiently while Google kept an
arrogant approach when dealing with prospective advertisers because they kept switching teams
already assigned to cases (2I). This was a source of frustration for people who wanted to
advertise with Google because they had to start all over anytime someone new was assigned to
an already opened case. [Vogelstein, 2004]

CUSTOMERS AND CLIENTS

The internet searching services customers and clients consisted primarily of advertisers,
internet search patrons, groups and licensees among others. Customers and clients were bundled
together because of the vague distinction between the two in this segment. Yahoo was a service
provider to Google when it displayed Google ads on the Yahoo web site. In this scenario,
Google was the customer on Yahoo’s web site. On the other hand if Google displayed a Yahoo
service beside its search results as a contextual ad, Google became the service provider and
Yahoo became a client to Google’s search service and its related advertising. The search
companies paid each other splits for using each other’s websites as platforms for advertising.
Splits are the percentage of ad revenue that search companies pay to network affiliates or other
search companies that allow them to use their search engine on their web sites. The key to
success here was to be as independent of other competitor’s websites as possible in order to
avoid paying too much in splits. Hence the need to expand to become a more independent portal
or internet services company (3A).

Clients

Internet search users were considered clients the minute they clicked on an ad displayed
next to search results (3C). They made money for search engines and ended up making money
for an advertiser when they ordered something related to their search enquiry. Users generally
utilized internet searches because there was a need that had to be met. Web patrons (users) were
the reason this sector of the technology industry existed. Web users were the market and the
target consumers. They generated the traffic and the clicks that ultimately led to sales for
advertisers. Groups were internet based clubs where members discussed topics, chat or added
postings to a news article. The key to success for search companies was to successfully provide
non-search related services such as online shopping, maps and driving directions, news, and
fantasy sports in order to successfully build a registered membership database that can be used
for directory-linked target advertising in the future (3E).

Advertisers

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Advertisers preferred a search-based ad because displaying an ad beside a search query
for something that the user immediately wanted information on (3F) was much more powerful
than banner ads, based on general user profile and demographics. Moreover, advertisers paid for
their ads only when web users actually clicked on their listings, a practice known as “cost-per-
click” pricing. This was the future of advertising because it met customer’s needs while at the
same time being cost effective for the advertiser. However a disturbing trend was currently
surfacing in the internet search segment referred to as “click fraud” where competing companies
were driving up rivals operating expenses from advertising by continuously clicking on ads
placed with search companies. By continuously clicking on ads without buying anything from
these advertisers, they were increasing operating costs and slowly driving their competitors
towards bankruptcy. The key to success was to be able to effectively track perpetrators of such
unethical behavior and to prevent identity theft of registered members in an internet search
company’s database (3G). As new households acquire computers and more people look to the
internet for their shopping needs, news and travel information (3H, 3I, 3J), internet search
companies offering these services would attract more revenues from advertisers.

TECHNICAL

This section covered the technology behind most internet search engines and their
relationship to third party web sites.

Technology

Internet search companies used mathematical principles (algorithms) to help develop
software that tracks words used in articles, reports, and basically anything posted on the World
Wide Web. In other words, web crawling software was developed using sophisticated computer
programming languages that stores links to web pages using keywords to determine topic and
scope. These stored links to various articles and reports were then matched with relevant
advertising links and submitted besides search results when a user made an enquiry using
internet search engines. For example Google’s PageRank technology examined all the hypertext
links from other web pages to a focal page. These links were called “votes”, because they
signaled that another page’s webmaster had decided that the focal page deserved attention. The
focal page’s importance was determined by counting the number of votes it received, weighting
votes more heavily when they were cast by pages that Google had previously deemed to be
important. This approach required PageRank to solve an equation with 500 million variables and
3 billion terms [PageRank, 2005]. Due to the fact that most internet search enquiries had a
commercial motivation, users were more likely to respond to advertisements relevant to what
they needed information on. Such was the strength of internet search in current advertising.
Internet search technology and its associated contextual ads (4A) represented the keys to success
and consequently sales revenue generation.

Third Party Web Sites

Third party web sites are smaller web sites that satisfied specific web user needs. These
included web sites that dealt with travel information only, cell phone functionality only,
upcoming music record releases and basically anything that specific groups could relate to. They

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are called third party websites because they help internet search engines reach a larger audience
by allowing them to use their websites as an outlet for search and advertising. For example a
third party website allowed an internet search company to post its ads on their websites and gets
paid for every click or sales generated through this third party website. In essence third party
web sites were additional playing grounds for internet search companies to reach a larger
audience for target advertising, increase market share and to generate more revenue in the
process (4D, 4E, 4F).

STAFFING

This section pertains to the human factor and expertise in the internet searching services
segment. The greatest challenge facing internet searching services companies were the
successful recruitment of a quality workforce. This workforce, incidentally, had to be market-
oriented and technologically savvy. Competition to land these jobs were intense and those that
make the cut were fairly remunerated.

Administration

The administration section normally comprised all the levels of a good business’ general
administration. This included human resources, accounting, finance, management, legal and of
course an information technology department. The information technology department was at
the heart of this segment. Seasoned veterans and prodigies in computer programming and code
writing worked tirelessly to concoct ways by which information could be linked together under
similar topics and organized successfully to enhance internet search. The key to success in this
area was to be able to successfully recruit a quality and technically proficient workforce (5A). In
addition, internet search companies should initiate drives to train, retain, and make the existing
workforce more productive while on the job (5B).

On-Campus Recruiting

Most internet search companies received tons of resumes from prospective employees
and graduating students aspiring to work for these companies. In addition, campus career centers
give recruiters the opportunity to select and interview qualified employees from a large pool.
Other forms of recruiting include organizing information technology and programming contests
to find the brightest talents. Initiating drives to train retain, and make the current work force
more productive (5B) were to be taken more seriously.

MARKETING AND PROMOTION

The nature of the computer services industry was such that there were really no strong
barriers to entry and innovation and new products were always being introduced to web users.
This called for quality services and sometimes very aggressive marketing in order to attract and
maintain customers who in turn generated revenues for search companies through their online
activities. However, it must be emphasized that search engines amassed their initial patrons by
simple word of mouth and spent very little on end-user marketing.

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Online

Companies normally used their own web site to promote their services. Very rarely
would you find an internet search company’s promotion on another company’s website. Industry
standard is for companies like AOL, MSN and Yahoo and Google encourage their registered
members to customize their web browser’s search pane as the default search engine (6B). This
was a good way of tying down novice internet users to a particular search engine since they
would automatically use the available search pane on their web browser.

Television

Television was traditionally not a preferred medium of marketing for internet search
companies. Even though it must be emphasized that as competition intensified among the
internet search companies, television would become an avenue for further marketing and
promotion (6C).

Membership Services

The large internet search companies like AOL, MSN, and Yahoo were beginning to
channel a lot of effort towards maintaining and developing their internet search capabilities to
match Google’s current internet search supremacy. These large companies already had a lot of
non-search related member services in place and would enjoy a big advantage if they were able
to successfully utilize the information in their large membership database- including email
accounts, personals (groups and online dating services), and fantasy sports (6E-6O) -to help
them advertise to their members based upon specific responses to previously asked questions
(6P). Google electronically scanned the contents of its Gmail service letters and places relevant
ads based on keywords contained in the letter beside the email once it was open to be read by a
Gmail service member. The main key to success here remains how to successfully convince
members that the confidentiality of their personal information would not be compromised (6Q)
nor shared with other marketing entities like telemarketers (6S).

COMPETITION

The main competitors of Google in internet search technology were MSN, Yahoo, and
AOL. Competition was fierce in this segment for two reasons. First, there were lots of revenue
being generated by the internet search companies and the major internet service providers had
been awakened by Google’s rise to fame and its ability to generate revenue from ads placed next
to its search results. Even though MSN, AOL, and Yahoo offered a lot of other services, they
trailed Google in market share and most importantly user loyalty, brand identity and easy name
recognition when it came to internet search. In other words, these big four companies all
provided search services but Google was by far the most popular in internet search. The other
three companies were however bigger in size and offered more variety in non-search internet
services. This was the reason some analysts referred to these relatively bigger companies as
internet portals. They offered a whole lot of internet services; and therefore can be referred to as
“portals” or doorways to the internet. The key to the future of internet search rested with the

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company that was best able to register its patrons and to successfully utilize that information to
advertise even more effectively (6R).

Secondly, there was a high level of unpredictability as far as the direction in which the
internet search segment was heading with regards to innovation. Every competitor in this
segment was trying to be more innovative in search solutions since quality search results
guaranteed customer loyalty and its accompanying advertising dollars.

Yahoo

Yahoo Inc. together with its consolidated subsidiaries are a global internet brand. The
company provided internet services that are essential and relevant to users and businesses
through the provision of online properties to internet users and a range of tools and marketing
solutions for businesses to market to that community of users. The company was focused on
extending the marketing platform and access to Internet users beyond the Yahoo Network
through the distribution network of third-party entities (affiliates) that have integrated the
sponsored search offerings into their websites. Many of the services offered were free to users
(1L-1W). It provided services that allowed businesses to list information on properties on the
Yahoo Network. The offerings to users and businesses fell into three categories: Search and
Marketplace; Information and Content, and Communications And Consumer Services.

Yahoo placed second to Google in the number of people who utilized search services and
was far ahead of the competition when it came to all other internet services like email, shopping
online personals and travel (1L-1W). The opportunities for success was for companies to offer
newer and more innovative services in order to build a solid membership base that could be
utilized for directory-linked target advertising (1C). Directory-linked target advertising, the
future of internet search’s continued revenue generation, first had to overcome its most
demanding test of ensuring confidentiality and preventing identity theft (1CC, 1DD). Yahoo had
an advantage because of its huge registered membership already in place due to the services it
currently offered like email, auto, shopping and driving directions. On the other hand Yahoo had
weaknesses when it came to linking their search engine to an already established information
source like the online Britannica encyclopedia (6D) and also did not have a platform for online
auctions (3K).

Yahoo efficiently offered business services like domain name registration, web site
design and development, (2C) and web hosting for small and new businesses. This represented a
great source of additional revenue. However, Yahoo was relatively weak with regards to
assuring registered service members of the confidentiality and security of their personal
information shared with the company (6Q). Also, Yahoo was not considered a dominant force in
internet search technology (4C).

For the fiscal year ended 12/31/04, Yahoo’s revenues totaled $3.57 billion, up from $1.63
billion. Net income totaled $839.6 million, up from $237.9 million. Results reflect increased
marketing services, fees and listings sales results from growth in Yahoo’s organic sales and
acquisitions and higher investment gains [Profile of Yahoo, 2005].

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AOL

Time Warner Inc. (Time Warner) was a media and entertainment company. It classified
its businesses into five fundamental areas: America Online (AOL), consisting principally of
interactive services; Cable, consisting principally of interests in cable systems providing video,
high-speed data and Digital Phone services; Filmed Entertainment, consisting principally of
feature film, television and home video production and distribution; Networks, consisting
principally of cable television and broadcast networks, and Publishing, consisting principally of
magazine and book publishing. AOL was a subsidiary of Time Warner Inc. It specialized in
internet services provision and more recently began to focus on internet search services as an
additional revenue source. In the internet search segment, AOL ranks fourth behind Google,
Yahoo, and MSN with regards to volume of internet search patrons [UsaToday, 2005].

AOL’s strengths were the variety of services it provided. These included online dating
services, email services, internet service provision, news and sports (1I-1W). The services it
provided like instant messaging allowed it to successfully register all its patrons (3D). This
broad membership base could be the needed catalyst for future advertising in the internet search
segment (3L). In addition, AOL had established a very secure website as far as virus protection
and Spam blocking controls for its internet service subscribers (6Q). AOL’s international image
and popularity (7G) remained an Achilles heel. The company, due to its inability to effectively
market to non-AOL internet service subscribers, was not popular outside of America and
Canada. Moreover, the company’s search service was not a dominant one in the internet search
segment (4C) when compared to the leading search companies.

For the fiscal year ended 12/31/04, revenues rose 6% to $42.1 billion. Net income from
continuing operations and before accounting change rose 2% to $3.21 billion. Results reflected
higher worldwide license fees from television series, partially offset by legal reserves expense
[Profile of AOL, 2005].

MSN

Microsoft Corporation developed, manufactured, licensed and supported a wide range of
software products for various computing devices. The company's software products included
scalable operating systems for servers, personal computers (PCs) and intelligent devices; server
applications for client/server environments; information worker productivity applications;
business solutions applications; software development tools, and mobile and embedded devices.
Microsoft provided consulting services and product support services and trained and certified
system integrators and developers. The company sold the Xbox video game console, along with
games and peripherals. Its online businesses included the MSN subscription and the MSN
network of Internet products and services. The company's seven product segments were: Client,
Server and Tools, Information Worker, Microsoft Business Solutions, MSN, Mobile and
Embedded Devices and Home and Entertainment.

The MSN network was a subsidiary of Microsoft Corporation and offered internet
services based on membership subscription for emails, online personals, shopping, etc (1I-1W).
Recently MSN linked its search engine to its online Encarta® encyclopedia software which was

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a virtual database of information updated regularly (1I). MSN had the financial backing of
Microsoft Corporation and openly expressed its intentions of improving and taking the internet
search business to a new level (4C). MSN also offered business solutions and web page design
and development for small new businesses (2C, 2F). On the other hand, the company’s inability
to mount a platform for online auctions (1S) and its ineptitude in the sale and distribution of still
images and other multimedia products (6L) counted as areas that needed improvement. In
addition, the company would be able to strongly capture market share only if they were able to
bundle very effective search software into Microsoft’s Windows computer program without
raising any anti-trust concerns.

The company gained prominence when it introduced software that made both business
and home computing a breeze for even the most reluctant to embrace computer technology.
Currently, it seemed to be loosing its technological luster and innovativeness when compared to
Google. A key to success would be to successfully recruit technically proficient workers (5A)
especially in internet search technology and to stop the exodus of its workforce to Google. MSN
may also boost its hotmail email service membership (6F) by increasing free storage limits to at
least one gigabyte since Yahoo was about to offer one gigabyte email storage for its members
and Google was already offering 2 Gigabytes for its exclusive Gmail service members.

For the six months ended 12/31/04, revenues rose 9% to $20.01 billion. Net income rose
44% to $5.99 billion. Results reflect continued improvements in overall Internet Technology
spending and lower research and development costs [Profile of MSN, 2005].

THE COMPANY

Google was founded about seven years ago by Larry Page and Sergey Brin, both PhD
students at Stanford University fed up with the existing internet search technology companies
and their inability to return accurate search results. Google, therefore, was basically an online
company that specialized in developing a reliable internet search engine. Of all the applications
on today’s computers, one could argue that the search engine was second in importance only to
the web browser (Internet Explorer or Netscape Navigator). This trend reflected the importance
of Google’s as a service provider to the computer services industry.

Google Inc. offered highly targeted advertising solutions, global Internet search solutions
through its own destination Internet site and intranet solutions via an enterprise search appliance.
In other words, the company maintained an online index of websites and other content, which it
made available to anyone with an Internet connection. Its automated search technology helped
people obtain nearly instant access to relevant information from its vast online index. In
providing an avenue for search, the company also furnished ads based on keywords in a search
enquiry beside the search results.

The company provided an interface for over 88 languages, and half of Google.com’s
traffic originated outside the U.S. This clearly demonstrated a trend of international popularity
and the fact that the company was satisfying an important need in today’s internet jungle where
users need a guide as to where to go looking for specific information, saving time in the process.

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Most of Google’s revenue came from advertising. This was done through Google
AdWords, which was based on an auction system. Basically, an advertiser will bid on relevant
words and the placement of the ads was based on the bids. A big benefit for the advertiser was
that there were no payments unless a user clicked on its ad. In other words, Google pursued a
“performance-oriented” method of advertising. This meant that very little was wasted in terms
of advertising dollars spent.

Again, the ad system was based on simplicity. There were no flashy ads; instead, the ads
were text-based. As a result, an advertiser did not have to spend much time creating an ad
campaign. It was also easier for the advertiser to flexibly change ads based on effectiveness.
Actually, it took only about 15 minutes to setup an ad campaign and an initial cost of $5 [Taulli,
2004]. The Google AdWords system had a powerful self management system. An advertiser
could easily adjust a campaign in terms of budgets. In other words, they could set a limit on how
much they can pay to have their ads posted in a given time frame

Following are detailed analysis of Google’s business model as depicted in Figure 6. Each
section focuses on strengths and weaknesses in key to success areas.

Figure 6
COMPANY ANALYSIS: GOOGLE, INC. BUSINESS MODEL

INTERNET
SEARCHING
SERVICES

MARKETIING
COMPETITORS
TECHNICAL
SEARCH SITE OWNER CUSTOMERS/ &
STAFFING
PROMOTION
SERVICES SERVICES CLIENTS

ON-CAMPUS
IMAGES, GROUPS,
ADVERTISING ONLINE
TECHNOLOGY RECRUITING/
DIRECTORY, USER AOL
NEWS CODE JAMS

BUSINESS THIRD
WIRELESS’
ADVERTISER PARTY
SOLUTIONS TELEVISION
TOOLBAR, YAHOO
WEBSITES
CATALOG

MEMBER
SUBMISSIONS MSN
SERVICES

GOOGLE

SEARCH SERVICES

Google had developed a broad range of innovative search solutions. Internet search
service was the core service from which additional services related to search branched off.
Consumers patronized all the additional services even though Google’s revenue was solely
generated from internet search services. The company generated all its revenues from selling ads
that were placed beside its search results. Google charged its advertisers an undisclosed amount
of money anytime an ad that was related to a search enquiry was clicked by an internet search

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user. In other words, the ad clicked did not have to generate a sale for Google to get paid: A
phenomenon in internet search advertising known as “cost per click” pricing. Google had built a
financial powerhouse selling ads this way.

Recently, the company announced a big change on how it was going to sell ads. Google
was going to allow advertisers more control over where their ads appeared online and how the
ads were priced. The company would allow advertisers to use flashier animated graphics. The
move, which applied to thousands of other web sites (Third Party) that used Google’s search
technology, was designed to attract more big name advertisers and should help Google better tap
budgets for advertising of product brands, which represented the bulk of U.S. ad spending
[Delaney, 2005B].

Images

Google’s images contained an index of 425 million still images. With Google images,
for example, a user typed “red sports car” in the images search pane and pressed “enter”. A few
seconds later more than a thousand pictures of red sports cars were made available for the user to
choose from. Industry experts predicted a strong demand for multimedia search (1A), given the
spread of technology for producing, sharing, and storing digital media files. Images were a
strong area for Google because the main competitors had not developed a strong buzz as far as
images. With the exception of Yahoo, Google was the automatic choice for images.

Groups

With Google groups, Google.com users could search for a discussion topic and add
postings to a newsgroup. Google acquired the Usenet discussion service from Deja.com,
including its archive of more than 500 million postings dating back to 1981. However, Yahoo
was more advanced and had a lot of patrons in groups and online personals (1B, ID). Yahoo had
several million registered patrons who used its platform for online topic discussions and posting
blogs.

Directory

Google used its unique search technology to arrange, by subject category, 1.5 million
URLs that had been identified by thousands of volunteers using Netscape’s open directory
project. Every web page had a unique Uniform Resource Locator (URL), or address. Directory
service was a way of classifying or listing all the millions of articles in the Google database into
subject categories. AOL, Yahoo, and MSN all had directory services and there were currently
not a lot of opportunities for revenue generation with this service on its own but just as a way of
attracting more patrons to discover other profitable services. In the future, however, directory-
linked target advertising (1C) held the promise of becoming the next direction for effective
internet advertising and marketing.

News

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Google news, started in early 2004, was compiled from 4,500 news sources worldwide.
Google news (1D) employed computer algorithms to identify the most relevant stories within a
topic area, then, by story, grouped links to different news sources, allowing users to see how
different journalists covered the stories. This service summed up the most read news articles for
busy people who could not sift through volumes of news articles daily. Yahoo’s news service
could be described as more comprehensive and a leader in this area and not a strong service for
Google.

Google Wireless

Google’s wireless search technology translated web pages into a language understood by
handheld devices. Licensees included Sprint PCS, Cingular, Nextel, Bell Mobility (Canada),
Yahoo Everywhere, Vizzavi, And Palm. This allowed cell phone and handheld device
subscribers to the above mentioned companies the ability to use Google search if they have
wireless access to the World Wide Web. The promise of licensing patented technology (1E) and
intellectual property to other companies needed to be encouraged and developed.

Google Toolbar

Google’s downloadable toolbar (1G) could be embedded permanently in a user’s web
browser. In addition to an internet search box, the Google Toolbar included tools for blocking
pop-up ads, automatically filling out web page forms, and creating “blog” postings pointing to a
web page. Blogs, short for “web logs”, are diaries in web page form that presented personal
thoughts on almost any topic. In early 2003, Google had acquired Pyra Labs and its website,
Blogger.com, which offered tools for creating web logs. Being able to successfully propagate
Google’s toolbar on web browsers would be a step in the right direction because internet search
users would not have to go to Google.com to initiate a search query.

Figure 7
GOOGLE'S TOOLBAR EMBEDDED IN MICROSOFT’S INTERNET EXPLORER
WEB BROWSER.

Google Catalog

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Google’s catalog search (1F), a beta service started in early 2004, allowed users to search
hundreds of print mail-order catalogs not previously available online. The catalogs have been
scanned, analyzed, and indexed by Google. The company was a pioneer in this area since none
of the major competitors- AOL, MSN and Yahoo offered this service. This was a very useful
service for prospective advertisers since most patrons of this service had a commercial
motivation. A key to success would be to reach an agreement with the companies whose
catalogs are indexed to pay a fee to Google anytime a sale was finalized through Google catalogs
(1HC). The online catalog idea was an opportunity to begin collecting information on products
and services that most companies which advertised with Google carried. This information, in the
long run can be used to enhance the quality of directory-linked target ads (1C) that were placed
next to search results because it would incorporate almost everything in the inventory of
advertisers and increase revenues for both internet search companies and search engines. In
addition, the transparency of advertising packages offered and a clear cut pricing policy was a
key to success for internet search companies (1HA).

SITE OWNER SERVICES

A site owner service referred to a platform that internet search companies and large
internet services companies used to invite potential advertisers to the variety of advertising
packages they offered. It represents a grand standpoint for a web based company to stake its
claim to being in a unique position to help businesses advertise and help them reach a larger
audience. This was the link reserved for potential advertisers looking to do business with an
internet search service company like Google. Google’s reluctance to incorporate multimedia
banner ads and colorful animated graphics (2A) on its home page did not serve as an effective
way of letting prospective advertisers get a visual image of Google’s advertising packages
because colorful graphics tend to make a better impression.

Advertising

Businesses that intend to advertise beside Google’s search results use this link to
determine if Google’s offered advertising package was the right choice for their business. For
example, a business owner faced with a decision as to whether or not to advertise with Google
would access this link in order to open a business account as a potential advertiser with Google.
Advertising under site owner services was a link reserved only for businesses who intended to do
business with Google. For example Google’s AdWords™ was cost-per-click advertising.
Advertisers paid only when users clicked on an ad. It had features that allowed you to control
your costs by setting a daily budget for what you were willing to spend per day. AdWords
sponsored listings were also shown on Google's partner sites. Yahoo was a segment leader as far
as presenting the potential advertiser with the best possible packages and also in terms of the
ease with which business was conducted (2B).

Business Solutions

Using this link, businesses are able to assess the various ways Google could help them
grow and become more profitable. In other words, with business solutions Google marketed the

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potency of its advertising methods to potential advertisers. Yahoo was the segment leader in this
area with MSN and AOL closely in the hunt. All the major players in internet search are going
to great lengths to make prospective advertisers knowledgeable on the various ways a search
engine could help them grow and expand their clientele. The crossing point for Google was the
fact that the company refused to advertise on its home page which was supposed to be the
ultimate platform. Google was the most widely visited website in the world. Management
believed that advertising on Google’s homepage took away from the main reason patrons visit
the site-quality internet search. The future had to take into consideration web site formation,
design and business solutions for small businesses (2C, 2F). In addition, management had to
setup at least three distinct levels of management in order to effectively handle business
operations (2D, 2H). For example the human resource division should be entirely empowered to
pursue the company’s staffing and equal opportunity policy needs just as the finance division
needs to focus on the budgetary needs of Google. These measures were considered paramount if
Google needed to survive the risks and administrative breakdowns that most companies faced
when they expanded and grew too quickly (2E).

Submissions

Case files for prospective advertisers on Google search were submitted through this link.
Google had a reputation for not assigning one person/ team to a case but rather kept switching
teams assigned to a particular case (2I). For most prospective advertisers, Google was filled
with arrogant heads and it was time consuming and difficult to do business with the company.
Yahoo’s effort at making submissions brisk was unmatched in the segment. Google needed to
improve the ease with which prospective advertisers make submissions and eventually spend
money advertising with Google (2G). This was important in order to implement a sound and
effective strategy in order to attract more members to internet search related business services
like advertising (2J).

CUSTOMERS AND CLIENTS

The internet searching services’ customers and clients consisted primarily of advertisers,
internet search patrons, and large web portals (3A) some of which had their own internet search
services; groups and licensees among others. Customers and clients were bundled together
because of the vague distinction between the two in this segment. Yahoo was a service provider
to Google when it displayed Google ads on the Yahoo web site. In this scenario, Google was the
customer on Yahoo’s web site. On the other hand if Google displayed a Yahoo service ad
besides its search results as a contextual ad (3B), Google became the service provider and Yahoo
becomes a client to Google’s search service and its related advertising. Companies in this
segment normally provided email services (3C) in order to increase the number of people who
visit their web site.

User

Most internet search users needed guidance in finding information about goods or
services for which they were interested and internet search engines presented an opportunity to
go directly to what you needed without wasting time. Internet search users also ended up buying

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things or requesting services that they made queries on. This was the lure to advertisers seeking
to reach consumer using internet search companies. Google, since it was launched in 1998, had
grown explosively to become the most used website in the world (3L). Inducted as a verb in the
Oxford English dictionary, it was each month used by 165 million people in the U.K. and U.S.
alone. In the lives of tens of millions of internet users, Google was nothing less than the front
door to the internet [Murray-Watson 2005]. Yahoo was closely behind largely due to its popular
free email service which was patronized worldwide.

Advertiser

Google had numerous loyal web users who used its internet search services frequently for
search solutions on the web. Quality search results make web surfing easier. This loyal pool of
patrons presented a great opportunity for advertisers to effectively reach a target audience. As
Google continued to develop effective ways of linking search results to specific search-based
services, advertisers would keep flocking to Google for ways in which they can help businesses
reach a target audience. Contextual ads, which were a Google staple, were internet search based
ads placed beside search results directing patrons to possible solutions to their internet search
query. MSN, Yahoo and AOL have begun to incorporate colorful graphics and multimedia
banner ads beside search results (3K). These were more flashy ways of attracting an internet
search user’s attention to an ad. Companies in this segment normally provided email services,
online shopping, news and sports, online satellite maps and driving directions services (3C, 3H,
3I, 3J) as a way of luring customers to their internet search services and to also have a registered
member base for future directory-linked target advertising (3D, 3E). Directory-linked target
advertising had not yet been approved due to the privacy and identity theft concerns of internet
service users especially registered members (3G).

TECHNICAL

This section encompasses the technology behind Google’s internet search engines and
their policy in relationship to third party web sites.

Google’s Technology

Businesses used the Google’s AdWords program to promote their products and services
using targeted advertising. In addition, the thousands of third-party websites that comprised the
Google network use the Google AdSense program to deliver relevant ads that generate revenue
and enhance the user experience.

Google AdWords ads connected businesses with new customers at the very moment
when they were looking for a product or service. The Google network reached more than 80%
of Internet users (4C). With Google AdWords, prospective advertisers could create their own
ads, choose keywords to help Google match their ads to a target audience and paid only when
someone clicked on them [Google, 2005 A].

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Google AdSense was a fast and easy way for website publishers of all sizes to display
relevant, unobtrusive Google ads on their website's content pages and earn money. Because the
ads were related to what users were looking for on a web site, website publishers could finally
both make money and enhance their content pages. It was also a way for website publishers to
provide Google internet search to their visitors, and earn money by displaying Google ads beside
search results [Google, 2005 B]. A key to success would be to remain a dominant force in
internet search technology (4B).

Third Party Websites

Google’s policy on third party websites read: “The sites displayed as search results or
linked to by Google services are developed by people over whom Google exercises no control.
The search results that appear from Google's indices are indexed by Google's automated
machinery and computers, and Google cannot and does not screen the sites before including
them in the indices from which such automated search results are gathered. A search using
Google services may produce search results and links to sites that some people find
objectionable, inappropriate, or offensive. We cannot guarantee that a Google search will not
locate unintended or objectionable content and assume no responsibility for the content of any
site included in any search results or otherwise linked to by the Google Services” [Google, 2005
A]. The goal here was to appeal to a large number of third party web sites in order to reach a
larger audience and increase market share in the process (4D, 4F).

STAFFING

Eric Schmidt, Google’s CEO, recently announced the company was having problems
recruiting. He claimed the pool of contestants were not either not quality or technically
proficient enough. The company’s headquarters in Mountain View, California employed a little
over 2700 people, of whom 900 were techies.

On-Campus Recruiting/Annual Code Jams

The company was notoriously picky when it came to hiring even though it was now
hiring about 25 new people a week. A team of 50 recruiters combed through resumes which had
to be submitted online then dumped them into a program that channels those chosen for an
interview to the proper hiring committee and threw the rest in electronic trash. Interviewing for
a job at Google could take months in a grueling process that was likely not to guarantee a job.

The company also organized annual code jams where programmers from all over the
world compete for cash and ultimately a job. The school campus environment at Googleplex-the
company’s headquarters in Mountain View, California-encouraged employees to stay at work
past work hours. There was an around-the-clock free catering service at the cafeteria.

Google as well as the main players in the internet search segment knew the future of the
segment depended on the continued development and training of technical staff that came up
with more effective ways of enhancing internet search technology. The key to success,

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therefore, would be setting up the right administrative mechanisms to effectively handle business
operations and to successfully recruit a quality and technically proficient work force while at the
same time improving on the competence of existing employees (5B-5D).

MARKETING/ PROMOTIONS

Most of Google’s popularity, so far, could be attributed to simple word of mouth and
quality search results. The company, however, had to shift into a more proactive mode of
marketing and promotion on a more serious level. Google needed to communicate to its
everyday patrons that it exists, first and foremost, to offer internet search services but also to get
users to accommodate the fact that the company was evolving and was rolling out a bevy of non-
search related services.

Online

Companies normally would use their own web site to promote their services. Google, on
the other hand, did not advertise on its home page. This, Google believed, lets the user know
that the quality of the search result was paramount. The user would only be introduced to ads
only after they typed their enquiry. It must be emphasized that companies encouraged their
registered members to customize their web browsers with a preferred company’s search pane as
the default search engine (6B). Google encouraged its search patrons to download an inbuilt
taskbar on their computers for search purposes.

Television

Television ads and radio promotions can be an effective outlet for reaching out to an
older less internet savvy audience. It had not been used traditionally as an outlet for marketing
and promotion by internet search companies but should be considered as competition between
internet search companies intensified. There may arise the need to pursue a marketing strategy
that included television ad campaign (6C).

Member Services

Google needed to expand its membership-grabbing effort by offering new services like
increasing its one gigabyte storage limit for its “Gmail” users among other things. The
company’s email services were based on invitation only from an existing Gmail user. How did
you get invited to subscribe to this email service? Nobody knew.

In a nutshell, Google needed to step up its membership service subscription initiatives
(6E-6O) if it was to compete in the future with companies with a large membership base like
MSN, AOL, and Yahoo.

COMPETITION

Google’s main competitors were Yahoo, AOL and MSN. Google compared favorably
with its major competitors in key to success areas. Google maintained an edge in the U.S.

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internet search traffic market share with 31%, whilst Yahoo and MSN held 26% and 20%
respectively [Bartley & Weinstein 2004 B]. However, Google did not have the size, network and
existing service (6E-6O) depth of its competitors.

Google’s internet search engine was by far more accurate when compared with AOL,
MSN and Yahoo’s search results. The major concern in this area was the fact that all the major
competitors had expressed keen interest in taking over the internet search segment in a bid to
dwindle Google’s current market share.

Moreover, the main complaint leveled by Google’s clients (prospective advertisers) was
the company’s inability to assign one team to a project (2I). The company kept changing
employees assigned to already established cases and wasted client’s time in the process because
they had to start over anytime a new team was assigned to an already opened case file. This
weakness had to be addressed by instituting proper administrative mechanisms including
effective supervision and effective delegation of duty (2H, 2I).

Google had to maintain a strong brand identity and goodwill (7E) in the internet search
segment when compared with the main competitors in internet search technology. Google’s
name had been listed as a verb in the Oxford English dictionary to refer to internet search. It was
the most visited website in the world (7C).

Finally, Google’s main competitors in internet search -Yahoo, MSN, and AOL- were also
well established web portals with a wide range of products and services and millions of
registered members (1I-1W). Google was yet to introduce a wide range of services to match its
competitors. Google’s revenue growth rate of 233.50% (see Figure 8) surpasses all its
competitors across the computer services industry even though the major competitors were by far
bigger and more independent web portals. Google’s main weakness was the fact that it had to
depend on its competitors to propagate its internet search technology. Others also suggested
Google could do without all the other services and forego high overhead costs associated with
operating a web portal like Yahoo, AOL and MSN.

Figure 8
DIRECT COMPETITOR COMPARISON

GOOGLE MSFT(MSN) YAHOO Industry

Market Cap: 54.05B 279.73B 46.90B 212.81M

Employees: 1,907 57,000 5,500 470

Rev. Growth (ttm): 233.50% 14.40% 70.50% 10.80%

Revenue (ttm): 3.19B 38.47B 3.57B 95.93M

Gross Margin (ttm): 54.29% 83.67% 63.67% 48.74%

EBITDA (ttm): 788.67M 13.44B 834.28M 6.71M

Oper. Margins (ttm): 20.07% 32.73% 19.26% 8.27%

Net Income (ttm): 399.12M 10.00B 839.55M 3.13M

27

Joseph Teye-Kofi

EPS (ttm): 1.442 0.917 0.576 0.13

PE (ttm): 137.09 28.04 59.22 27.12

PEG (ttm): 1.63 1.73 2.18 1.32

PS (ttm): 17.01 7.29 13.24 1.96
Source: http://finance.yahoo.com/q/co?s=GOOG. Accessed February, 7 2005.

FINANCIAL ANALYSIS

Google ranked high among the computer services industry’s well run companies. The
company’s profit margin of 12.52% favorably compared with the industry average. The current
management’s effectiveness was positively highlighted through the ROA and ROE of 21.05%
and 25.97% respectively.

Google’s revenue growth of 117.56% as of December, 2004 was phenomenal and further
reflected an increase in shareholder value with current revenue per share of $11.692 over the
same period. With regards to internet search technology, so far, Google had the winning search
engine. This trend was easily reflected the company’s financial position and the fact that it was
the most visited website in the world.

The company made all of its revenues from contextual ads that were placed beside search
results. For instance a business owner arranged with Google to pay for clicks on its ad to be
displayed beside a Google search result anytime a particular keyword was searched. For
example a corn distributor would choose “corn” as the keyword that should trigger its ad to be
displayed. The business specified the number of clicks it could afford to pay for daily or weekly
based on a fee agreed upon between Google and the advertising company. Businesses were
increasingly using this mode of advertising because it yielded better results as far as generating
sales because ads generated were relevant only to the search enquiry and was more likely to
result in a sale.

In a nutshell, Google was currently one of the fastest growing companies in any industry
as reflected in its revenue growth rate. The company’s recent IPO with its Wall Street buzz and
the eventual tripling of the company’s stock trading at $180, reflects the confidence that the
public had vested in the future direction of the company. Financially, Google was sound
especially when you analyzed the fact that the company’s expenses were minimal because it was
basically a technology based company and therefore did not have to spend a lot of money and
energy in some physical raw materials (Inventory). Google’s raw materials were the
innovativeness of its technical staff.

Figure 9
GOOGLE INC: SUMMARIZED COMPARATIVE INCOME STATEMENT

Analytical
FYE FYE
12/31/04 12/31/03 $ Diff % Diff
Revenue $ 3,189,223 $ 1,465,934 1,723,289 117.56

28

Joseph Teye-Kofi

Less: Cost of Revenue 1,457,653 625,854 831,799 132.91
Gross Profit 1,731,570 840,080 891,490 106.12

Less: Operating Expenses 1,091,378 497,616 593,762 119.32
Operating
Income/(Loss) 640,192 342,464 297,728 86.94

Add: Other Income 10,904 6,121 4,783 78.14
Less: Other Expenses 862 1,931 (1,069) (55.36)
Income before Taxes 650,234 346,654 303,580 87.57
Less: Income Tax
Expense 251,115 241,006 10,109 4.19
NET INCOME $ 399,119 $ 105,648 293,471 277.78

Figure 10
GOOGLE INC: SUMMARIZED COMPARATIVE BALANCE SHEET

A/O A/O
12/31/04 12/31/03
Current Assets $ 2,693,465 $ 560,234
Non-current Assets 619,886 311,224
Total Assets $ 3,313,351 $ 871,458

Current Liabilities $ 340,368 $ 235,452
Long Term Liabilities 43,927 33,365
Total Liabilities 384,295 268,817
Stockholders Equity 2,929,056 602,641
Total Liabilities &
Stockholders equity $ 3,313,351 $ 871,458

Profit Margin 12.51% Net Income/Revenue
Operating Margin 20.07% Operating income/ Revenue

All numbers in thousands

MANAGEMENT STRATEGY

Google’s President and CEO, Eric Schmidt was committed to the continued growth of
Google as a premium internet search company while at the same time striving to further expand
beyond just the internet search-based services the company offered. These considerations, when
affected, should brace Google for the future as far as offering a bevy of services that
complements Google’s internet search efficiency and simultaneously diversified it with a more
balanced business model better prepared to absorb the vicissitudes of business. The company
needed to introduce new internet related services in order to develop a more enduring company
not reliant solely on internet search technology but diversified enough to remain an enduring

29

Joseph Teye-Kofi

entity. The company also had to further develop upon its international popularity to ensure that
the necessary profits were reaped in the international markets which held a new promise and a
large potential market share nowhere near its saturation point.

Google, however, had to improve upon its general administrative capabilities. It had
been proven that businesses did not survive on technology alone but rather the fusion of
technology and good general administration (management). The fall of most internet based
companies in the mid 90’s remained an astounding testament to this fact.

Moreover, the number one complaint leveled by prospective advertisers trying to do
business with Google was the fact that its employees were a bunch of brash arrogant heads who
kept switching teams assigned to cases. This led to unnecessary delays and frustrating
experiences when setting up business deals with the company.

Google, therefore, had to work around these general administrative inefficiencies. They
could do this by setting up at least three levels of administrative divisions and delegate duty
using supervisory controls at all levels. Human resources, finance, research and development,
quality control, and client relations were suggested administrative divisions to help decentralize
the company’s uncontrolled management structure. These adjustments would be necessary if the
company wanted to expand and offer new services aside internet search.

LOOKING TOWARDS THE FUTURE

In 2005, CEO Eric Schmidt and his management team decided that Google needed to
effect measures that would allow it to remain competitive as more big players focused on the
internet search segment. Despite the fact that Google had established a niche as a leader in
internet search technology, the company was introducing a new line of services not related to
internet search. This new situation placed Google in a face to face showdown with companies
that were previously considered too big to be Google’s competitors. These bigger companies
namely MSN (Microsoft), AOL and Yahoo were also feverishly trying to close in on Google’s
internet search supremacy and had made public their intentions to participate in the advertising
dollars internet search generates. Google, therefore, needed to differentiate itself from the other
competitors in the internet search services and to remain the household name with the largest
market share. This it had to achieve using the immense human, financial and technological
expertise at its disposal.

One alternative proposed by Larry Page, co-founder, suggested the need for Google to
keep focusing on doing what it does best- “internet search solutions”. He stressed the need for
the company to focus on its distinctive competence by continuing to develop a superior search
engine. In essence, Google should remain a company that specialized only in developing the
best internet search engine and focus only on internet search applications and how it could best
be utilized to effectively advertise products and services. This would keep Google on top of the
pile in the internet search segment.

30

Joseph Teye-Kofi

The benefit of this alternative was the sustained revenues from advertising that focusing
on further developing a proven internet search engine like Google brings through online target
advertising using contextual ads (1Y). This would allow the company to remain focused on
developing further what brings the company all of its revenues- internet search technology and
its associated online advertising. It was a winning formula that had been proven because it
brought the company sudden fame and fortune.

This alternative was feasible mainly because it focused on further developing Google’s
main strength-internet search services. It focused on a path successfully trod by the company-
internet search technology. Google’s search engine and its associated contextual ads technology
(1Y) attracted advertisers and had been referred to as the future of advertising.

The alternative could win against the competition because with regards to internet
search technology, Google was the segment leader in market share (1A, 1B). Despite the hot
pursuit by its competitors namely MSN, Yahoo, and AOL; Google had established brand name
recognition (7E) in internet search technology. The company’s web site was the most visited
website in the world attesting to its superiority in internet search and as a gateway to the internet
(1Y, 7C). Being the internet search segment leader, Google could further develop its winning
search service and focus on capturing market share in the international arena where Google
remained more popular than its competitors especially AOL and MSN (7C, 7E, 7G). Google
could use its brand name recognition in internet search to generate revenue using its segment
leading contextual ad technology (1Y).

The company recently announced that it was going incorporate colorful and animated
multimedia graphics (3K) beside its search results. Advertisers were also going to pay for the
service whether or not users clicked on an ad. This method of web advertising known as “cost
per impression,” was based on the number of people that saw the ads and would be displayed on
sites that run Google’s search technology. This would allow Google’s advertisers to reach more
customers while expanding the list of possible advertisers who would want to consider Google as
a potential source for advertising; increasing internet search market share (4F) in the process.

A drawback to this alternative was the risk of not having a wide range of services (1I-
1W) to help absorb the shock of lost revenues in the event internet search did not live up to its
current promise as an effective advertising medium.

A way around this drawback would be to introduce other revenue generating services
aside internet search (1I-1W). Google could introduce ancillary services like paid jumbo-sized
email accounts for small businesses and also introducing online business solutions and web page
design and development for new businesses (2C, 2F).

Another alternative being considered by Sergey Brin, co-founder; suggested that in order
to differentiate itself from the competition, Google needed to add a broad range of services and
communication tools like instant messaging, travel, news, email, paid jumbo email accounts,
web site development and hosting, sports, finance, games and text messaging to complement its
internet search services. In other words, Google needed to expand as a business if it was to
remain competitive in the future.

31

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