Networked Markets

Group 2

Anjali Priya (133) || Manju Murali (154) || Goutham R (169) || Rajat Srivastava (173) || Ankur Nanda (385)
 Key Factors behind Googles early success (1/2)
Technical Capabilities
Googles PageRank is a proprietary technology
which was a major improvement over the existing
technology which avoided irrelevant listings
Google kept on improving its search technology
by introducing features like Personalized Search,
HummingBird etc.
For advertisers Google introduced packages to
optimize there campaigns like Google Analytics
Google acquired DoubleClick and introduced
banner ads and expanded it into AdSense.
ECONOMICS OF STRATEGY
Benefits for Advertisers
Google because of a high user base and large
amount of search traffic is advantageous for
advertisers.
It allows a lower minimum CPC bids 1 cents
compared to Overtures 5 cents
Revenue share was based on bargaining power
of advertisers varying from 60% to 90%.
Google provides geographic targeting capabilities
to better target ads on the basis of location
7/26/2017 2
 Key Factors behind Googles early success (2/2)
Strategic Management of
Corporate Values
Innovation

Dont be evil is the central tenet for refusal to
compromise the integrity of search results.
For Google technology matters and they heavily
invest to keep it on improving.
Google has penchant for unconventional
management and avoids unnecessary disclosure
of its strengths, strategies and intentions.
Engineers were encouraged to spend 20% of
their time working on projects of their own
choosing.
Google engineers typically worked in teams of
three to five people.
Management used a 70/20/10 rule for allocating
engineering efforts.
Google remained willing to invest in promising
long shots e.g. moonshots, Google X Labs

ECONOMICS OF STRATEGY 7/26/2017 3

 Porters Five Forces for Search Engine Industry
Threat of new entrants
Any new entrant can enter market easily with no
entry barrier
Cost of doing business is low
Surviving is difficult as it requires capturing market
share (brand loyalty acts as an impediment) and
building a major brand which creates an edge over
other factors LOW to MEDIUM

Bargaining power of Suppliers Competitive rivalry Bargaining power of Buyers

Information provider are the supplier in the
industry which are large in number
Switching cost for platform provider is low
The power of supplier is low since information
is dynamic and given the complex nature of
online advertising industry
LOW
Large numbers of competitors There are two side of buyers - advertiser and
Rapidly evolving and changing technology search engine user.
Low switching cost for both - the users and Advertiser has moderate power as they generally
advertisers form a significant revenue source for the company.
The services provided are free so the advertisers
HIGH rely on companys increased size and reach
Switching to other networks is easy LOW to MEDIUM

Threat of Substitutes
Search Engine generally dont have any
substitutes.
Other substitutes in advertising segment includes
TVs, print media etc. and libraries/encyclopedias
for search engine user. But with advent of
technology, digital and online marketing is future.
LOW to MEDIUM

ECONOMICS OF STRATEGY 7/26/2017 4

 Is search a winner-take-all business?

Multi-Homing Costs Network Effects Product Differentiation

ADVERTISERS
Low: Advertisers face no
homing cost as they can easily
spend in other search engines.
The overall expenditure is low
as they are charged on cost per
click(CTC) basis.
USERS
Low: The services provided are
for free and hence users can
easily move to another search
engine depending on their
requirements without incurring
any extra cost.
Strong Preference for special feature
ADVERTISERS
Negative: They create a ADVERTISERS
negative effect on the user as Medium: Advertisers have a
their number increases user try preference for ads being
to avoid search engines. Also displayed in relevant websites
CPC increases with the increase and at a preferred location for
in advertiser base. maximum visibility to relevant
customer leading to increased
USERS revenues.
Positive: If the number
increases, more advertisers USERS
comes in and creates positive Low: No specific preference
cross-side network effect leading other than relevant search hits
to platform convergence. in minimum time

Hence, the search engine industry is not Winner Takes All industry and so chances of becoming concentrated is low.

ECONOMICS OF STRATEGY 7/26/2017 5

 Should Google also branch out into new arenas? (1/2)
Multi-Homing costs are high for at
least one user side
Network effects are positive and
strong - at least for the users on
the side of the network with high
multi-homing cost
Neither sides users have a strong
preference for special features
Threat of Envelopment
ECONOMICS OF STRATEGY
Building a full-fledged portal
like Yahoo!
Low
User can easily switch from one portal
to other for required product or service
Positive Network Effects
The Advertisers get high returns due to
increase in growth of customers or
viewers of portal
Preference exists - High
Advertisers look for special placement
position and click from customers with
high conversion potential
Moderate Threat
Depends upon the type of services
provided on Googles portal since other
portal may provide greater bundle/multi
platform bundle
Targeting Microsoft's desktop
software hegemony
High
Switching from Microsoft OS/Office is
difficult due to compatibility issues,
effort required and costs involved
Positive Network Effects
There is a positive and high symbiotic
relationship between customers and
software developers for OS platform
Preference exists - Moderate
Customers look for a platform that has
wide application base and user
friendliness whereas suppliers look for
high compatibility
Low Threat
Here OS remains a platform on which
others software can build upon and is
not a standalone service.
7/26/2017
Becoming an ecommerce
intermediary like eBay
Low
User and suppliers can use multiple
platform for their product listing and
purchases. No unique value proposition
Positive Network Effects
With increase in customer base
network, the platforms tends to
generate higher returns to the suppliers
Preference is nonexistent
Suppliers or customers do not look for
any specialized feature and there is no
scope for feature convergence
High Threat
Since it is an standalone service it can
be easily enveloped.
6
 Should Google also branch out into new arenas? (2/2)
Vision Alignment
Organize the worlds information
and make it universally accessible
& useful.
Capability and Future Profitability
ECONOMICS OF STRATEGY
Building a full-fledged portal
like Yahoo!
Yes - High
The portal business aligns with
companys vision of shared information
by connecting customers with relevant
products offerings through
advertisements
Moderate - Low
Google is already offering portal like
services through Google News, Gmail
and others. Also the market has many
players which are offering similar
features with minute differences
Targeting Microsoft's desktop
software hegemony
Yes - Low to Moderate
The OS platform can serve as a means
to allow customer access, analyze and
disseminate various services, software
and information available with relative
ease
High - High
Google has experience in developing
pilot chrome OS and Android OS for
mobiles. Once a sustainable ecosystem
is formed the returns becomes
exponential due to network effects
7/26/2017
Becoming an ecommerce
intermediary like eBay
No
The ecommerce platform cannot serve
in providing information universally as
the information sharing will be at mercy
of info providers and regulators leading
to information asymmetry
Moderate - Low
The Google products and searches
may provide google an insight into the
market but the market is highly
competitive with low profit
7
 Should expand its business
Google should branch out into new arenas and expand its business. Google is currently the industry leader. It
should utilize this position of its in the market and should capitalize on its brand name, technological capabilities. In
the past it has already entered new businesses and has been very successful like youtube, gmail etc.

Scenario 1 : Portal style business like yahoo

Even though Portal Service may be aligned to Googles vision, its profitability must be analysed and its capability to
compete with large players must be studied before entering. Also, this business is redundant as Google is already
offering portal like features in its web search.

Scenario 2 : Target Microsoft's desktop software hegemony

We will recommend Google to target Microsoft's desktop hegemony. This confrontation would be extremely risky.
Competing in OS development is challenging since it is dominated by Microsoft which has deep pockets and a well
established business ecosystem and hence must be pursued by slowly building its own ecosystem.

Scenario 3 : An ecommerce intermediary like eBay

Google should not venture into e-commerce intermediary such as eBay due to a number of factors. Firstly, the
competition is quite high with many established players such as eBay and Amazon. Secondly, Google lacks
capabilities. Finally, this business is not aligned with Googles vision of making information accessible and useful.

ECONOMICS OF STRATEGY 7/26/2017 8

 THANK YOU!

ECONOMICS OF STRATEGY 7/26/2017 9