Strategic Case Analysis
March 28, 2012
Table of Contents
1.Google’s Early Key Success Factors2
1.1 Innovated and Differentiated Search Engine2
1.2 Innovated Advertising Ranking2
1.3Expansion of Search-Related Advertising2
2.Is Search A Winner-Take-All Business?3
2.1 Multi homing costs3
2.2 Strong network effect3
2.3 Differentiated feature3
3.Google’s Strategic Options: What is the Best?4
1.Google’s Early Key Success Factors
1.1 Innovated and Differentiated Search Engine
By improving their existing search algorithm, Google resolved the problem of irrelevant listings –“Spam” that frustrated users. The “PageRank” Algorithm reliably delivered more relevant searches by favoring pages were referenced – “linked to”- by other pages. By taking this non-imitable initiative, Google differentiated their service and addressed: Unmet needs of searchers: for faster,more efficient, and more relevant search results. 1.2 Innovated Advertising Ranking
Google innovated advertising ranking by weighing cost per click (CPC) bids by ratio of an advertisement´s actual click-through rate (CTR) to its expected CTR. By taking this initiative they pre-empted and fulfilled the users’ unmet needs: Pre-emption: by developing the CTR model, Google exploited the first mover advantage. CTR model features were not supported by any of the search engines in the market. Unmet needs:
•For Web Searchers: more accurate and relevant advertising hitscome first. •For Advertisers: better information of customer preferences and ad visits, in addition to exposure to relevant audience. Therefore,increasingthe willingness to pay for advertisers. In addition to meeting their customer’s needs, Google offered a better pricing than its competitors; offered lower Cost per Click at $0.30 compared to $0.40 in competitors which increased the willingness to pay for advertisers. 1.3Expansion of Search-Related Advertising
Google also differentiated their search-related advertising by launching “contextual” paid listings, where the listings appeared on web pages providing editorial content (news, blogs etc…). This initiative was also an innovation and differentiation for Google where they used the core capabilities and resources (e.g. web page content index), pre-empted, and met further needs of their customers. Pre-emption: “Contextual listings” model was imitated by Overture later on. However, Google took the benefit of the first mover advantage and was the first player to launch the “contextual listings” before any of its competitors did. Unmet need of advertisers: providing advertisers with new media (blogs, social networks, news etc…)to advertise through contextual listings on web pages.
2.Is Search A Winner-Take-All Business?
For search to be a winner-take-all business the following conditions should apply: Web SearchersAdvertisers
Low / HighReasonLow / HighReason
Multi homing costsLowZero switching cost.LowLow cost of online advertisements in spite of marginal increase in working capital. Strong network effectLowWeb searchers have no incentive to stay and would shift to a better and faster search engine.HighAdvertisers follow the users. Differentiated featureLowA small differentiator addressing an unmet need would not create a large niche in a similar platform environment.LowAdvertisers will follow the user network. 2.1 Multi homing costs
•Searchers: With the availability of multiple search platforms there is no switching cost for web searchers, where it takes the user one mouse click for switching. •Advertisers: Although advertising on multiple platforms increases the working capital for the advertisers, this increase is too low to make a significant impact. Users can advertise through multiple platforms without incurring high...