Google Company - Economic Condition and Its Market Share - Case Study Example

Executive summary A monopoly exists when a market evolves to consist of but a single supplier who has exclusive power to sell a business or provide a service within that market. While additional suppliers may exist alongside the monopoly, they are typically very small niche players. Monopolies may be regional such as is typical of public transportation services, or global. For instance, Google has a monopoly of the search engine industry globally though there also exists other smaller players in the industry. This paper aims at analyzing Google’s monopoly in the search engine industry. The paper first introduces Google Company giving its current state as well as its current economic conditions. This also includes Google’s current market share Vis a-vis its competitors. The paper then analyses the current state of the search engine industry as well as the changes of market shares in the industry to the current state. The changes in market shares has been explained using the factors that might have brought about the changes. The paper then at the various strategies that Google has adopted in a bid to remain the market leader in the industry. In conclusion, the paper argues that Google is likely to remain ahead of the competition owing to its high quality products, innovation as well as the pricing strategy of Google. Study of Google Introduction This paper studies Google as a company with monopolistic traits. Google is an international company with its presence in over 200 countries. Based on the characteristics of the search engine industry where Google operates, it can be concluded that Google is a monopoly. This is because the search engine industry has evolved to consist of Google as the major supplier with exclusive power of providing the search services within the market. Though there are other suppliers in the market such as Bing and Yahoo among others operating alongside Google, their market shares make them very small niche players. As will be established, Google’s monopolistic traits include being a price maker, the profit maximization motif, being the largest seller in the market, absolute product differentiation and having substantial control of the market while being able to innovate and hence create barriers to entry for the industry. Thus, this paper is aimed at analyzing Google as a monopoly in the market as well as how it is able to stay ahead of the competition. In so doing, this paper will first give an overview of Google including the factors that make it a monopoly. The paper then studies the industry within which Google operates including its structure before studying Google’s economic condition as well as its market share. The paper will then analyze the changes in market shares as well as the factors behind the changes. Finally, the paper studies the various strategies opted by Google as it fights to remain the market leader. Overview of Google Google is an American multinational technology company mainly specializing on internet related products and services including online advertising technologies, search, software and cloud computing among others with profits mainly being derived from AdWords that place advertising close to the list of search results. The company was established in 1996 by Larry Page and Sergey Brin and incorporated in 1998 while an initial public offer was placed in 2004. Since its incorporation, the company has rapidly grown to become the biggest player in its industry and is even considered the monopoly due to the size and scale of its operations. The company today offers a wide variety of products and has been involved in many acquisitions and partnerships that have gone beyond its core search engine of Google search. Apart from the search engine, the company also offers Google Docs that include Gmail, Google drive, Google + and Google chrome which is a web browsing application among other products and services. Thus, its growth strategy has seen the company become the biggest company in its industry and by 2007, the company was estimated to have over a million servers in data centers globally while processing over a billion search requests on a daily basis. In 2013, its growth strategy saw the company become the most visited website globally. Today, Google is a market leader controlling 72.48% of the search engine market with its nearest competitor Bing controlling only 10.39% of the industry’s market share. As will be seen below, the rapid growth witnessed by Google could be attributed to its unique products as well as the continuous innovations happening at the company. Google’s economic condition and its market share Since its inception, Google’s economic conditions have been improving every year. For instance, the company’s brand value has grown from 55.317 billion dollars in 2012 to 82.5 billion dollars currently with the company’s market share rising from 66% in 2012 to 72.48% currently. The company has also had a strong financial position since its inception with the company recording growth in revenues and cash flow on a yearly basis. Furthermore, the number of investors investing in Google has been rising every year. The company’s strong economic conditions can be attributed to the wide range of products that the company offers with the list of products and services offered by the company growing on a yearly basis. For instance, the company’s revenue grew from less than 2 billion dollars in 2003 to over 10 billion dollars in 2007. In 2013, the company recorded revenue amounting to $55,519 million which rose to $66,001 million in 2014. In 2015, the revenues rose to $74,989. Similarly, the income generated by the company has been on the rise with the net income available to all stakeholders rising from $ 12,733 million in 2013 to $ 14,136 million in 2014 and $15,826 in 2015. A similar trend can be observed in the company’s balance sheet where the company’s total assets grew from $129,187 million in 2014 to $147, 461 in 2015 according to sec.gov (2016) .This shows that the company’s financial stability has been improving over the years thanks to increased innovation and hence increased number of products being offered to the market. In addition, increased customer loyalty has seen the company grow from scratch at its inception in 1996 to command a 72.48% market share in 2016 according to (Carlson, 2016). Changes in market shares and the factors behind the changes The market shares of the various companies operating in the search engine market has greatly changed within the last twenty years when there was no dominant player in the industry to the present when Google is the dominant player and is considered a monopoly in the market with the rest of the companies being seen as small niche players. For instance in the year 1999, Google had only 7.8% market share which is almost a tenth of the 72.48% market share the company has today. The chart below shows how the market shares for various companies operating in the industry has changed over the years for Google, Microsoft and Yahoo in the US market. It is worth noting that prior to Google’s IPO in 2004, Google and Yahoo had almost similar market shares with the market having no dominant player. However over the years Google’s market share seems to have stabilized at around 70 percent with all other players trailing far behind Google. As such, Google is considered a monopoly as it is the dominant player in the market. The changes in the market shares for Google and other companies in the search engine market could have been triggered by a number of factors. The first factor is innovation and hence ability to innovate. With the increased competition in the industry, companies had to differentiate their offerings in the market so as to be able to effectively compete in the market. Consequently, it is only the companies with high innovation capabilities that were able to offer highly differentiated products to the market hence gaining a substantial market share. On the other hand, the companies that were never innovative enough as to change with change lost their market share. This explains why Google eventually became the dominant player in the market. Another factor is the number of products offered by each player. As competition increased, the number of products offered to the market increased with those companies offering the most number of products and in the best quality gained more market shares as opposed to those that did not. The cost of the products offered by the different players also contributed to the changes in the market share within the industry. This is because naturally consumers would prefer cheap products. Thus as competition increased, those that were able to offer services at competitive prices gained significant market share while those that did not lost their market share. This would explain why Google has gained such a big market share within such a short time given its highly innovative nature, the variety and quality of its products as well as the nature of its competitive pricing of its products. Various strategies opted by Google for the war of market leadership In order to remain ahead of the competition and hence remain a market leader, Google uses a number of strategies including its generic strategy of differentiation as well as its growth strategy. These strategies are explained below; Google Company’s generic strategy on the basis of Porter’s model is its differentiation strategy. The strategy also involves a broad scope of the market with the company offering its products to almost everybody globally. The differentiation strategy is also about development of certain unique capabilities making Google competitive. Google is set apart from competitors since its products are unique and this is achieved through high level of innovativeness. The company also offers increased variety of offerings that include Google search, Google glass and Google fiber among others as part of its differentiation generic strategy. Google also has a search algorithm that evolves over time hence ensuring competitive advantage against major competitors including Bing and Yahoo among others. Thus, Google maintains its competitive advantage through uniqueness and continued innovation. The company has a strategic objective of continued development of new products and continuous improvement of existing ones. Thus, Google remains a market leader through its differentiation generic strategy. Google also uses its intensive growth strategies for the war of market leadership. The strategies include market penetration especially outside its home market of the US where the company is already a market leader. In china for instance, Google is in direct competition with similar large companies. Thus, Google strives for a bigger share of the market globally. Another growth strategy adopted by Google is market development. The strategy has been applied for its fiber product where currently, Google Fiber internet and cable TV services are only in a few markets but through the market development strategy, Google will be able to offer the products to more markets in future. The final growth strategy adopted by Google is that of product development. The strategy is applied through Google’s intensive innovation with the company continuing to develop new products such as driverless car and Google glass. New models of nexus mobile devices also continue to be developed. Through the company’s product development strategy, Google is able to continually develop more income generation channels. Through such strategies, Google is able to continually expand while growing its global presence. This contributes to Google’s market leadership. Google’s success as the market leader stems from its VRIN strategy. In this regard, Google has developed valuable resources with the company being best known for its search engine that drives advertisements that account for 96% of its revenue. Another valuable resource for the company is its employees who are behind its numerous innovations. Google has a long portfolio of rare resources including patented technology which are more than 24,000 thus keeping the company ahead of the competition. Google’s resources are also in-imitable with the company owning many datacenters and servers globally. Google’s offers are also difficult to substitute which also help the company to stay ahead of the competition. Conclusion This paper has studied Google Company as an example of a company operating in a monopolistic market. Google in this case is considered a monopoly since it controls roughly 70% of the market share with its closest competitors lagging far much behind. The paper also studied Google’s economic condition as well as its market share with the conclusion that the company’s economic condition has been improving since the company’s inception. The paper also studied the search industry within which Google Company operates within aim of establishing the changes in market shares for the various companies in the industry. As a results, a number of factors including innovation, differentiation, pricing and quality of offerings have been identified as having caused the changes in the market shares. Finally, the paper identified the strategies that Google company has coopted in its fight to remain the market leader in the industry. Such factors include the porters’ generic strategy of differentiation as well as the company’s various growth strategies. Finally, the company has been noted to offer high quality products that are unique from those of the competitors thus helping it stay ahead of the competition. References: Sec.gov, 2016, Alphabet Inc., Retrieved on 12th August 2016, from; https://www.sec.gov/Archives/edgar/data/1288776/000165204416000012/goog10- k2015.htm#s2E5F35311DA23B0DA721CA5152B6CA6D. Carlson, N2016, Domination or usurpation? Google and the search-Engine market, Retrieved on 12th August 2016, from; http://localsphere.com/google-search-engine-market/ qz.com (2016), Google’s growth since its IPO is simply amazing, Retrieved on 12th August 2016, from; http://qz.com/252004/googles-growth-since-its-ipo-is-simply-amazing/ Read More