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Look: Real World Industry Analysis

www.astranti.com

Real World Industry Analysis Astranti Financial Training

Copyright © 2015 Strategic Business Coaching Ltd All rights reserved. Personal use only - not licensed for use on courses. Any unauthorised copying or sharing of this material is punishable by CIMA under the CIMA code of ethics

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Look: Real World Industry Analysis

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Chapter 1................................................................................3 Introduction............................................................................3 1. What to expect from this analysis............................................................4

Chapter 2................................................................................6 Overview of Google...................................................................6 1. Google Inc........................................................................................7

Chapter 3..............................................................................11 Products and Markets...............................................................11 1. 2. 3. 4. 5. 6. 7. 8. 9.

Google Search..................................................................................12 Maps/Earth.....................................................................................16 Android TV......................................................................................17 Google Drive....................................................................................18 Android..........................................................................................20 Google Play.....................................................................................21 Nexus............................................................................................ 23 Glass............................................................................................. 25 Other............................................................................................26

Chapter 4..............................................................................30 Structure and HR.....................................................................30 1. HR................................................................................................ 31 2. Structure (2013)...............................................................................33 3. Google purchases..............................................................................34

Chapter 5..............................................................................36 Financial Information...............................................................36 1. Income Statement.............................................................................37 2. Balance sheet..................................................................................39 3. Cash flows......................................................................................41

Chapter 6..............................................................................43 Ethical and Legal Issues.............................................................43 1. 2. 3. 4.

Tax avoidance..................................................................................44 Carbon neutral.................................................................................44 Lobbying spending.............................................................................45 Privacy.......................................................................................... 45

Chapter 7..............................................................................47 SWOT analysis.........................................................................47 1. SWOT Analysis..................................................................................48

Chapter 8..............................................................................50 Competitors...........................................................................50 1. 2. 3. 4.

Apple Inc........................................................................................51 Amazon..........................................................................................51 Microsoft........................................................................................52 Facebook........................................................................................52

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Look: Real World Industry Analysis

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Real World Industry Analysis

Chapter 1 Introduction

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1. What to expect from this analysis Hello, and welcome to the Astranti Real World Industry Analysis for the March 2015 Strategic Case Study Preseen! As you may know by now, the Preseen focuses on a fictional company called Look. And, as I'm sure you have figured out, Look is largely based on the real world company Google Inc. So, what we thought we would do to help you out is produce a complete industry analysis for Google, focusing on its application to Look in the SCS Preseen. We have taken the tomes of information out there on Google, and condensed it down to a focused built around the following aspects: •

Formation and growth



Key products and markets



Corporate structure



Financial statements



Ethical and legal issues



Analysis of the company, and



Main competitors.

Since the company in the Preseen shares many things in common with Google, an understanding of Google and its industry is key to the understanding of Look and its industry. A real world analysis of Google is therefore an indispensable tool in conducting a full strategic analysis of the preseen. As well as helping you with the preseen analysis, a broader understanding of the industry in general will prepare you for any potential questions or issues in the examination. Unlike T4, in the SCS you will not need to give industry examples. That said, you will be expected to have sufficient business awareness, and to give considered, logical analysis in exam, and this industry analysis will give you all you need to know. Therefore, throughout this text we have made comparisons between Look and Google, giving you all the necessary information about Google that is applicable to Look, including wider industry analysis, leaving out anything not relevant to the exam. Each of the products looked at in this analysis correspond to a product produced by Look, shown in the following table:

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Look Search

Google Search

Look Space

Google Maps

Look Media

Android TV/Chromecast

Look Cloud

Google Drive

Look OS

Android

Look Apps

Google Play Store

Look Phone

Nexus

Look Lens

Google Glass

And so, for each analysis of a Google product and market, we have included a section on how this relates to Look. This will give you a deeper understanding of the industry, putting you in a great position to be ready for the exam. So, without further ado, let's take a look at Look by getting to grips with Google.

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Real World Industry Analysis

Chapter 2 Overview of Google

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1. Google Inc.

Google is a United States Head-quartered, multi-national corporation, specialising in internet-based services and products, as well as other areas within the technology industry. Their core service is a web search engine, known as Google Search, although Google have developed and expanded into many other areas of the technology industry, including productivity software (Gmail, Google Docs), social networking (Google +), mobile telecommunications (Android), internet service provider (Google Fiber), and many, many more.

Foundation and growth Google was founded on 4th September 1998 by Larry Page and Sergey Brin. Together they own about 14 percent of its shares but control 56 of the stockholder voting power through 'supervoting stock', a class of stock that provides its holders with larger than proportionate voting rights compared with another class of stock issued by the same company. Application to Look - This voting structure is similar in nature to Look's, with the founders having control of the business with 'founder's shares'. Not surprisingly, Google have come under criticism for the poor governance that such shares mean, as shareholders do not have ultimate control over decisions made by the company, giving too much power to the founders. This is excellent ground for a governance question about Look's governance in the exam. Google Inc. has undergone rapid growth in the years since incorporation. This growth has allowed expansions far beyond the core search engine, and has thus given rise to various products, acquisitions and partnerships. In March 1999, the company moved its offices to Palo Alto, California; home to several prominent Silicon Valley technology start-ups. The following year, Google began to sell advertisements associated with search keywords. In order to maintain a simplistic page design and increase search speed, advertisements were solely text-based. Keywords were sold based on a combination of price bids and 'click-throughs', with bidding starting at five cents per click. Copyright © 2015 Strategic Business Coaching Ltd All rights reserved. Personal use only - not licensed for use on courses. Any unauthorised copying or sharing of this material is punishable by CIMA under the CIMA code of ethics

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This model of selling keyword advertising was first pioneered by Goto.com, who sued Google over alleged infringements of the company's pay-per-click and bidding patents. Goto.com (later Overture Services) was later purchased by Yahoo! and renamed 'Yahoo! Search Marketing'. The case was settled out of court; Google agreed to issue shares of common stock to Yahoo! in exchange for a perpetual license. Application to Look – Look have spent billions of $ on patent rights, and this case demonstrates why. A similar patent issue could be an issue in your exam. In 2001, Google received a patent for its 'PageRank' mechanism. The patent was officially assigned to Stanford University and lists Lawrence Page as the inventor. In 2003, after outgrowing two other locations, the company leased an office complex from Silicon Graphics at 1600 Amphitheatre Parkway in Mountain View, California. The complex became known as the Googleplex. Three years later, Google bought the property from SGI for $319 million. By that time, the name "Google" had found its way into everyday language, causing the verb "google" to be added to the Merriam-Webster Collegiate Dictionary and the Oxford English Dictionary, denoted as "to use the Google search engine to obtain information on the Internet." More recently, Google have expanded into various new markets: •

Android in the SmartPhone software



Nexus in the mobile phone and tablet markets



Google Glass



Chromebook in the laptop market

In October 2014, according to the Interbrand ranking, Google was the second most valuable brand in the world (behind Apple) with a valuation of $107.4 billion. A Millward Brown report from the same year puts the Google brand ahead of Apple's at #1. Application to Look – Branding and reputation are critical to Look too, and having people use the phrase 'to Google' as an everyday term is superb branding. Why would you Google something on Bing? It is vital in the exam that you ensure that projects do not compromise the brand, for example through poor ethical behaviour.

Mission Statement Google's original mission statement is as follows: “To organise the world's information and make it universally accessible and useful.” Copyright © 2015 Strategic Business Coaching Ltd All rights reserved. Personal use only - not licensed for use on courses. Any unauthorised copying or sharing of this material is punishable by CIMA under the CIMA code of ethics

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with an unofficial slogan of: “Don't be evil.” Google’s mission is a poorly created statement. It does reveal firm’s core purpose, but doesn’t provide any information besides that. The statement doesn’t mention 7 components out of 9 commonly assoctiated with good mission statements: customers, technology, concern for survival, philosophy, self-concept, concern for public image and employees.

The mission is customer-oriented, which means that Google is focused on customers’ needs instead of focusing on certain products or services. Google also doesn’t say what values guides its actions and only provides 10 beliefs that reveal Google’s philosophy: •

Focus on the user and all else will follow.



It’s best to do one thing really, really well.



Fast is better than slow.



Democracy on the web works.



You don’t need to be at your desk to need an answer.



You can make money without doing evil.

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There’s always more information out there.



The need for information crosses all borders.



You can be serious without a suit.



Great just isn’t good enough.

Application to Look Google's broad mission statement is similar to Look's in that it is less useful for focused decision making than it should be, and so less useful as a strategic tool. You should be able to criticise Look's missions statement and be able to redraft it, using Campbell's elements of Purpose, Strategy, Values and Behaviour standards as a focus.

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Real World Industry Analysis

Chapter 3 Products and Markets

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1. Google Search Google web search is the most used search engine on the World Wide Web. The following section is taken from Wikipedia: The main purpose of Google Search is to hunt for text in publicly accessible documents offered by web servers, as opposed to other data, such as image or database search. It was originally developed by Larry Page and Sergey Brin in 1997. Google Search provides several features beyond searching for words. These include synonyms, weather forecasts, time zones, stock quotes, maps, earthquake data, movie showtimes, airports, home listings, and sports scores. There are special features for numbers, dates, and some specific forms, including ranges, prices, temperatures, money and measurement unit conversions, calculations, package tracking, patents, area codes and language translation. In June 2011 Google introduced “Google Voice Search" to search for a spoken, rather than typed, word. Application to Look: It should be assumed that Look provide similar services, although addition of Voice Search could easily be a topic for a 'new project' which they should do if they don't already, in order to continue leading the way forward with search. Google started 2014 by setting a new U.S. search market share record of 67.6 percent, before dipping slightly to 67.5 percent in February and March. Bing is second place with 18.7 percent of search queries, up from 18.6 percent in March. However, this is a significant increase from April 2013 when Bing only held 17.3 percent of the market share. In third place was Yahoo with 10 percent of search queries, a drop from 10.1 percent in March. Application to Look: This matches the position of Look with two main competitors. The problem for the competitors in the real world is that Google are so big, and people that use Google will probably never use Bing or Yahoo. Trying to reach those customers means they need to advertise with Google, putting Google in a very strong position. Look are no doubt the same.

Competitors: Global Though Google is the most popular search engine, there are several competitors, and there share of the market varies considerably depending

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on the part of the world in question. Following is a list of the main competitors to Google Search: Yahoo! Yahoo! Inc. is an American multinational internet company, and in this respect shares a lot in common with Google. As well as a search engine, Yahoo! offers a multiplicity of services, including Yahoo! Mail, Yahoo! Finance, Yahoo! Answers, Yahoo! News, online mapping, and video sharing, amongst others. Yahoo was founded by Jerry Yang and David Filo in January 1994, and was incorporated on March 1, 1995. Marissa Mayer, a former Google executive, serves as CEO and President of the company. During July 2013, Yahoo! Surpassed Google on the number of United States visitors to its Web sites for the first time since May 2011, set at 196 million United States visitors, having increased by 21 percent in a year. Yahoo!'s Search website is ranked at 4th globally, and 5th in the United States. Bing Bing is a web search engine by Microsoft, launched in May 2009. Before the launch of Bing, the market share of Microsoft web search pages had been small, but by January 2011, Experian Hitwise show that Bing's market share had increased to 12.8% at the expense of Yahoo! And Google. Bing powered searches also continued to have a higher "success rate" compared to Google, with more users clicking on the resulting links. In February 2011, Bing beat Yahoo! for the first time with 4.37% search share while Yahoo! Received 3.93%. In July 2009, Microsoft and Yahoo! made a ten-year deal in which Yahoo! Search would be replaced by Bing, with Yahoo! keeping 88% of the revenue from all search ad sales on its site for the first five years of the deal. The Bing.com website is ranked 24th globally, and 19th in the United States.

Competitors: China Google has had a rocky relationship with the Chinese authorities since January 2010, when the company said it might shut down Chinese operations due to a “sophisticated and targeted” cyber attack. Google said at the time that it was no longer willing to censor its Chinese search engine. The forced blockage of Google's service and Google's subsequent threat to pull out highlight concerns of cyberspace security within China.

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In 2014, in response to a series of terrorist attacks, China made all Google services almost unusable by tightening its Internet censorship (colloquially knows as 'The Great Firewall of China'). In 2009, one-third of all searches in China were on Google. Now Google only has 1.7% marketshare. Application to Look: This real world example would make a very nice question in the exam and one we would not be surprised to see. Baidu Baidu Inc. is a Chinese web services company, and is the No. 1 search engine in China, controlling 63 percent of China's market share as of January 2010. Google China, the subsidiary of Google designed for Chinese language search results, is ranked 3rd most popular in China, after Baidu and Soso. Baidu is ranked 5th globally, and 1st in China. Soso Soso.com is a Chinese search engine, the second most popular in China. As of 1 October 2012, Soso.com is ranked as the 33rd most visited website in the world, the 11th most visited website in China.

Competitors: Russia Yandex Yandex is a Russian internet company which operates the largest search engine in Russia, with about 60% market share in that country. Yandex ranked as the 4th largest search engine worldwide, based on information from comscore.com. Yandex, along with Baidu, is therefore one of the national non-Englishlanguage search engines that pose as significant competitors for Google in their respective countries. Application to Look: Look's revenues in Asia are much lower than in Europe and the US and as such there is growth potential in that market. They would need to improve their brand recognition and search abilities in foreign languages with non-standard characters.

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Worldwide, Google is the dominant search engine, other players making up just a small part of the market.

Advertising The majority of Google's profits come from advertising, with 91% of revenue being derived from advertising programs in 2013. Google uses a combination of it's own software, and technology from DoubleClick in the targeting of advertising to user-interests. DoubleClick is a subsidiary of Google, which develops and provides Internet ad servicing services, with clients including Microsoft, Apple Inc., General Motors, Coca-Cola, Visa USA, Nike, among others. Google acquired DoubleClick for US$3.1 billion in March 2008. Application to Look: Do not be afraid to recommend purchasing companies for significant sums if it will secure a competitive position or patents. Google AdWords is an online advertising service that places advertising copy at the top, bottom, or beside, the list of search results Google displays for a particular search query. The choice and placement of the ads is based in part on a proprietary determination of the relevance of the search query to the advertising copy. AdWords has evolved into Google's main source of revenue. For the 2013 fiscal year, Google reported $50.547 billion in total advertising revenues of a total revenue of $55.519 billion.

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2. Maps/Earth Google Maps is a desktop and mobile web-mapping service application and technology provided by Google, offering satellite imagery, street maps, and Street View perspectives, as well as functions such as a route planner for travelling by foot, car, bicycle (beta test), or with public transport. It was launched in February 2005. In 2012, Google Maps was the most used smartphone app in the world:

Application to Look: Look Space is the comparable product. There is no specific information on Look Space App, we do know they are the market leader in mapping software so would assume they are also the market leader in mapping apps, if not the most popular app worldwide.

Up until 2012, Google Maps powered the Maps application on all iPhones. However, Apple have developed Apple Maps, which appears to be the main competition and rival to Google Maps. Although initially very unsuccessful, Apple Maps has grown in popularity, largely due to it being the default map application on iPhones. The UK mobile network EE, which owns Orange and T-Mobile, reported the following in 2014: “Traffic on the new Apple Maps now represents 70% of mapping traffic on the 4G network, from 60% in the second half of 2013, taking market share from Google maps, which is down 7ppts. This difference is even more marked over 3G where Apple Maps is up 19ppts and Google Maps is down 15ppts.”

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