Hello.

Welcome to our discussion of the Google Case.

Hopefully, by now you've read the case,

reflected on questions that we provided and had some opportunity to discuss

those questions with others either in forums or in person.

My intent here with these case debrief is not to give the answers to the questions

but rather to provide some things to think about as you do these various analyses or

respond to these different questions.

It's often the case that there is not a right or

wrong answer to the questions that we raise.

The purpose here is to highlight that there are the often

better argued questions than others, better argued answers than others.

And so I'm gonna provide you some guidance here to think about these tools and

frameworks and how they might be applied even more generally then

the specific case here of Google.

My hope through all this is illustrate you how to really think about doing

a strategic analysis, how to leverage some of these tools to provide insights here.

And so this is an opportunity for you to apply these tools and

basically hone your strategic analysis capabilities.

So let's jump right in.

The first question we ask is what is Google's strategy?

On the surface it seems like a pretty straightforward, simple question here.

Once again, I would suggest you think about the three parts of strategy we

talked about in the first module which is what's the mission of the organization?

What's their strategic plan or what we may call strategic intent?

And then finally,

what are specific strategic actions they are taking in line with those?

Together those three help define their strategy.

Now, in Google's case you can go online, look at their annual report, look at their

website and get some information about how they articulate their strategy.

And I'm gonna highlight two things that they highlight in their own statements.

First is what might be thought of as a value statement.

Do no evil.

Well, that's a really catchy and interesting way to frame their values.

And one to think about how do you actually operationalize that at the end of the day?

The second thing, I'd highlight is what we might call their mission statement,

which espouses this idea of organizing the world's information.

And as we've discussed before, it's a very broad and grandiose mission.

But what does that mean, at the end of the day?

I think it's really interesting to note with Google that as you start to

unpack these very high aspirations, the fact of the matter is

over 90% of there revenues still come from paid on line search.

And predominately, historically that's meant from personal computers of course,

mobile is becoming more important.

But once again their primary business model is to sell you advertising through

the search process.

So an interesting question for us is how can we break this down further?

How can we go a little bit deeper in our understanding of who Google is?

And how they're achieving their objectives and what their strategic plan is.

So let's discuss the competitor analysis.

One of the other requests we had of you as you considered the case.

The question of what is their industry and who are their competitors again might seem

deceptively simple on the surface but actually can be quite difficult.

Let me quote one student here who has a great way of perspective on this.

It is easy to identify Google's competitors because all the technological

companies are actually competitors of Google but to decide which of the most

important ones is really difficult and I think that's a great insight there.

One of the interesting things in Google Space is suddenly, all of these companies

that maybe historically were thought of somewhat distinct, Microsoft or Apple,

others as well are suddenly competing with one another in different interesting ways.

In general, when you're trying to identify the competition and

identify the industry, recognizes a number of things that can make this challenging.

One thing to think about, simple product differentiation.

So I've mentioned before portion key and

the comparison between the two while they're both in the auto sector,

are they really competing with one another that closely?

In Google's case, it's interesting to think about Yahoo.

Clearly, historically a major competitor for Google but are they such today that

they should be the one we put a lot of our attention for doing a competitor analysis?

Another thing that might lead to some challenges with identification is

geographic segmentation.

Think about the wireless carrier business, the cellular business.

That tends to be very regional, if not nation-state based where you have these

national carriers as a result it's probably not useful for

you if you're considering a European-based telecom to think and

worry about the US based telecoms to the extent there's even some political legal

reasons those are separate industries and separate companies.

In the search business it's interesting to think of Baidu in search in China.

One of the few places that Google does not have an overwhelming market

share is China.

They have this entrenched rival in Baidu.

And while Google has made some inroads there,

clearly they're a second place finisher to Baidu.

How much do we need to consider this Chinese market on the same level as

other markets?

These are all kind of interesting open questions if you're doing a competitor

analysis on Google.

More generally we might think about close substitutes.

Think about soft drinks versus sport drinks.

To what extent is Gatorade versus Pepsi or the like in competition with one another.

Those can be important questions to ask when thinking about the competition.

Industries clearly evolve if we look at someone like IBM historically we'd

probably define them as a Macrocomputer,

minicomputer manufacturer then a personal computer manufacturer.

Today, we'd probably refer to them as more of a service-based company.

And once again, clearly in Google's Space, there's been a lot of coalescing

amongst the various players in the technology space whereas 10, 15 years ago,

we might not have seen a Google and Apple in competition or Facebook.

Now, they're increasingly so, even Amazon we might

importantly put in that set of competitors Google needs to think about.

Last, but not least we might think about different technologies.

Talked about Nucor steel before.

Large steel mills versus mini mills as a potential source of

difference within that industry.

While both types of companies produced steel, they have different

underlying technologies at the end of the day and that might be a difference.

So how do you do this?

How do you actually define the industry and determine who the competitors are,

I would say the gold standard is what we call cross price elasticity.

And what this simply means is, if you raise the price of one good or service,

what happens to the demand of another?

So a classic example would be butter and margarine.

If you raise the price of butter, arguably demand for margarine would increase as

people substitute away from the higher priced butter to the margarine.

So if we measure that, we could actually get some of these tradeoffs and

really see oh yes, these two companies are actually competing with one another

because of this price sensitivity between their products of services.

In fact, there is a lot of new data that's being collected in kind of the big data

sense maybe point of sale data, credit card data and the like.

That allows you to do maybe a more refined test to

determine that cross price elasticity.

At the end of the day though,

it's often difficult to get exactly the data you need to make these distinctions.

So I suggest a simpler strategy which is just to identify what

we would call strategic groups.

Bundles of companies that have similar backgrounds and then prioritize them based

on the ones that are most relevant and most closely related.

So when I think of Google, the most obvious direct competitor to their search

business would probably be something like Microsoft and Bing.

But as we think more broadly as they move further in their technology development,

there's clearly others we want to have a high priority on and be thinking about.

All right, let's move on to our second tool that we asked you to complete here,

that's an environmental analysis.

I think you can identify any number of important environmental factors in

Google's world across the six categories we outlined.

One could imagine even looking at political, legal challenges Google Faces

in different environments, issues around censorship and privacy.

So even a tech company like Google Faces significant

pressures from a number of different quadrants.

In general, I would suggest don't worry about

getting things classified into the right category in your environmental analysis.

That's not really important and critical at the end of the day.

The main reason we have these six categories,

is just to fire in your brain different things you need to be thinking about.

And so as long as you list those out,

it doesn't matter if you get it into one category or another.

It's really to get your thinking clear on these issues.

Another thing I would observe, is that just recognize that for

certain companies and

certain industries, different categories are gonna matter more than others.

So clearly, in Google technology is a huge issue.

For other industries, maybe the fashion industry, maybe that's less of an issue

compared to like social cultural trends or demographic trends.

So don't worry if there's certain topics that don't elicit a lot of ideas or

a lot of trends.

Again, that's gonna vary quite a bit across different industries and

companies you look at.

Once we have these two tools completed,

we not ask a question about, is this a competitive market?

Is this one of these perfect competitive markets

where economic rents are hard to come by or is this an industry and

a firm that might have a sustained competitive advantage in some way?

This is in essence the heart of what we're trying to achieve in our Foundations of

Strategy Business Course and

will be a subject for many of the modules we talk about within this course.

We'll talk in later modules about capabilities analysis is a way to

analyze internally what are those capabilities a firm has and

do they provide a sustained competitive advantage.

In Google's case, a number of things might come to mind.

We might cite the user interface, the simplicity of it that many people enjoy.

But what you want to think about again are these issues around imitability.

How hard is it for someone to imitate that user interface of Google?

In fact, it’s very easy and many others have if you look at Bing and

Yahoo, and some others,

they will have these simple interfaces that are available to you if you choose.

So that becomes harder to identify as a source of sustained competitive advantage

likely because of it's ease of imitability.

How about technology?

Maybe the underlying search technology is simply superior for

Google maybe, maybe not.

Let me give you a quote here from Microsoft Bing's VP of Development.

Google's a very nice system but compared to my vision, it's pathetic.

All right.

So they're not known for being modest there perhaps.

But an interesting perspective as to whether or

not the technology itself is the distinctive advantage for Google.

How about a brand, right?

It's become this verb these days, you Google something.

Students often like to cite this as the potential source of competitive advantage.

Once again, perhaps but let's think of some things.

One, about only 8% of revenues from Google go to advertising.

So they're not spending a lot on this brand.

I would also point out that over the history of search

we've had lots of different market leaders.

You might of course remember Yahoo, how about Alta Vista, Lycos.

All of these kind of historical examples of searching and

at the time they were popular brands that have fallen by the wayside.

Not suggesting again that that's gonna happen to Google, but

it makes us question whether the Google's brand is really the heart its advantage.

As we've talked before, really it's these higher order combinations of capabilities

that often lead to competitive advantage.

Here's a quote from a student who says, people are what really matter now a days.

They are what define if a company will succeed or not.

I think that's an interesting perspective here,

and gets us to these kind of higher order issues around capabilities and the like,

and around things like the integration of those in terms of

culture that maybe that's the secret sauce for Google at the end of the day.

So last but not least, we ask the question would you invest in Google?

So to be clear, this is not a question of whether Google is likely to be successful,

it is really a question about whether the market currently over values or

under values Google as a company.

They might be successful in the future, but

if they're overvalued in the market they may be a bad investment opportunity.

Now, theoretically the market value of Google should be equal

to the steam of future discounted cash flows that accrue to the company.

Now, it's beyond our scope to go through a discounted cash flow analysis.

However, if you make a model and look at the numbers.

I think one thing that becomes clear very quickly is that the current market

evaluation of Google suggests that they're going to have to

grow their revenues quite substantially over the next let's say five, ten years.

It also suggests, if you consider looking at the current

dominance in search in fact, that they have 70%,

if not more in certain markets in terms of their search capabilities.

If you consider that the market for search itself,

while still growing is beginning to taper off in terms of that growth.

It suggest to me that the only way they can justify their stock price is

that they're gonna have to diversify their earnings into some other line of business.

Now for Google,we can speculate about what that might be.

They're making investments in things like driverless vehicles and the like.

Maybe there's an opportunity for

them to monetize some of these other efforts that they have.

But right now, again they are primarily an advertisement company selling

advertisement through search.

So again doing the analysis, looking at the numbers,

we can start to speculate how they might leverage their current capabilities,

current advantages to then diversify into other businesses.

If we think they are good investment opportunity.

All right.

So in summary, let me end with the following.

I hope you're beginning to see how these tools that we've developed can be applied

in a business context here to start painting a picture

of a company in it's competitive environment.

Competitor analysis and environmental analysis are two fundamental tools here to

help us understand that competitive environment.

We're gonna add more as we go here.

These all work with concern with one another.

They're not viewed as isolated analysis here.

They compliment one another to create a fuller picture

of a comprehensive strategic analysis.

So again, they start to help us answer some important questions about

the strategy and the direction of the firm.

And gives us a template for

working through what are really quite complex questions at the end of the day.

Google Case Debrief

Foundations of Business Strategy

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