Google Harvard Case

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Google Case
What were the key factors behind Google's early success?

The main key factor for Google’s early success was the creation of PageRank algorithm. Stanford graduate students Sergey Brin and Larry Page transformed the spam problem of all search engines into an opportunity by creating an algorithm that favored pages that were referenced by other pages rather than simply counting key words. The page’s importance was determined by counting its inbound links, weighting the links more heavily according to Google’s previous analysis. This resulted in the creation of a reliable search engine that did not return any irrelevant listings or spam. Google was therefore delivering search results that people really wanted. In fact “Google’s mission is to organize the world’s information and make it universally accessible and useful”. In second place Google was able to improve the nature of targeted advertisements. Paid listings were facing the problem of irrelevantly addressed advertisements and also the problem of charging according to a wrong methodology. Google instead sponsored links that were related to searched keywords so that generally a user would find them interesting or, at least, not intrusive. Regarding charges, in 1999 Google introduced the cost-per-impression basis, paying every time an advertisement was viewed, rather than the cost-per-click (CPC) and later on (in 2002) introduced a new method by weighing CPC according to the ratio of the rate of actual click-through rate (CTR) to its expected CTR. In 2003 it also introduced “contextual” paid listings, which were advertisements on web pages, which were correlated to the nature of the advertisement. We can therefore see how much Google gives importance to innovation: in fact Google keeps innovating its own business models, not only creating a highly effective revenue generator but also a better experience for users. Focus on users is in fact also very important for Google. Google puts users before revenues; Google in fact states, in its “Don’t be evil” value, that they will never manipulate the rankings given by PageRank algorithm because the users have trust in Google’s objectivity and that comes first than any short term-gain. Also, it is almost self-evident that Google wants the user’s experience to be a pleasant one: the simple white search page with only Google’s logo and no advertisements make the user’s experience more appreciable. Also the sponsored links being only simple text and no images does not slow down the search experience making it more pleasant for the user.

Do you expect the search business to become more concentrated (i.e.: dominated by fewer firms)? Is search a winner-take-all business? I believe the search business could become more and more concentrated. In fact this business is already very concentrated: Google holds just below 70% of the market share, Yahoo just below 20% and Microsoft just below 10%. From 2004 Google’s share has been rising at the expense of both Yahoo and Microsoft. The three search engines face strong competition and share the common objective of dominating the web. However Google is strongly leading the market and because of the network effect it will be hard for competitors to gain ground on Google. To better explain the network effect it is sufficient to point out that today an internet site that is not referenced on Google is likely to be more exposed to an imminent death. The network effect is also the reason why this is a winner-take-all business: in fact the leader eventually will gain most if not all of the market share. This is what happened to Google which, after having gained the majority of the market share, had higher probabilities to keep increasing it thanks to the network effect and thanks to its competitive advantages - Algorithmic search results and Paid listings - which is exactly what has been happening since 2004. Also I believe that the search business could become more concentrated...
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