Strategic Management: Case Study of Google Inc. 20071. Google’s Strategic Tools and External EnvironmentBackground, evolution and growth: Google Inc. has been one of the fastest growing companies in the recent global corporate history. The company was founded in 1998 by Larry Page and Sergey Brin, then Stanford graduates, who developed the search engine product. In 1999, the founders got their first round of venture capital from Sequoia and Kleiner Perkins, two of the leading angel funding companies (Mangalindan, 2005). By 2003, the company had captured a major market share in web searches and advertisement earnings through paid listings. When Google entered the internet market, the trend was that of earning revenues through banner advertisements on web sites.
But Google did not carry any advertisements on its web site and offered nothing but search results. For its revenues, it depended only from licensing revenues on its search technology to Yahoo! and other third-party sites (Eisenmann and Herman, 2006). When the dotcom boom was in its full form, the heaviest users of the internet were ecommerce firms. For these users, search results were important as a source of information as well as for marketing their products and services.
In December 1999, Google followed the business model engineered by Overture (acquired by Yahoo! in 2003) of paid listings that marketers had already shown a preference for over banner advertisements. Most users were known to use web searches for commercial purposes and marketers preferred to buy paid listings from search engines rather than post banner ads on web sites. The paid listing revenue model was founded on “cost per click” (CPC) and users tended to click on the topmost listings.
Marketers bid high on key words since they had the potential to increased sales, the principal beneficiary of the system being the search engines that earned on the number of clicks and price bid for each click. At the time, the market for paid listings was controlled by Overture that in turn supplied the listings to the largest portals of the time, that is, MSN, Yahoo! and AOL. Google entered the market through innovation of this product. It introduced the weighted CPC bids, that is, the ratio of the ad’s real click through ratio (CTR) to the statistically derived CTR.
The result was that the most clicked listings would come up on top so that the user had the possibility of clicking on the most popular ads. This also ensured that the marketers who had the highest CPC as well as the highest CTR would be ranked on top giving value to the most effective ones. This ingenuous initiative by Google catapulted it to the ninth rank among websites in 2001 with 24.5 million visitors every month. In 2002, AOL signed with Google for paid listings and algorithm search results.
Since then, the market for paid listings has been shared between Google and Overture. Both companies have made significant spending on technology, creating entry barriers for prospective competitors. At the same time, the companies have vied with each other in developing new products – like Overture’s software tools to improve product quality on content and Google’s contextual paid listings – that were displayed on the web sites rather than on the search results – and Overture too adopted the product (Eisenmann and Herman, 2006).