Google_Value_Chain_Analysis

Google’s Value Chain Analysis: Google’s primary activities in its value chain vary from a traditional model where raw materials are processed into finished goods for sale to a customer, gaining value in each step of the process. Since Google doesn’t produce physical products, its value chain is a bit more nuanced. Google gathers all the web users it can (the raw material) by enticing them to use its stellar search product with highly relevant results delivered promptly. Then, through assorted “signs” (text advertisements) it directs these same web users in the form of traffic to its advertising partners who transform the traffic into “conversions” or sales on their sites (the finished good). Google adds value not only by directing a quantity of web users to specific sites, but also by sorting the pre-qualified visitors using keyword association and search history to recognize users’ interests In this manner, Google ensures that the users who are directed to a partner site are more likely to purchase a product there. Google’s primary activities in its value chain are heavily dependent on the support activities of administration and human resources. Google has always tried to hire the most qualified and competent individuals to ensure that it excels at the research and development of its technology and systems. In fact the company often gives aptitude challenges and tests to help recruiters sift through the massive amounts of resumes they receive. Next to the employees, a large percentage of the cost structure is the infrastructure and systems. Google’s servers and internal software allow it to conduct operations, distribution, sales, and service. Each activity contributes to the value chain by increasing the profit of the firm. Google has locations all over the world to localize distribution, marketing, and service which in turn ensures maximum profit on a global scale. Profit is maximized by the company’s cultural awareness and social competence to tailor products to the regional needs of its users. By shifting activities geographically, Google can also take advantage of diversity from a human resources perspective and also perhaps lower salaries in countries other than the United States. Google has even begun outsourcing some of its copywriting to firms in India. Google uses advanced analytics to measure the efficiency of its supply chain (the web users). This data about the history of its users is important because it helps Google improve its search algorithms and advertising interface. New technology and word-of-mouth promotion by its loyal users can bring in new customers and thereby increase the profit margin. Competitive Advantages: Google has sustainable competitive advantages because the remarkable scores accrued in measures of value, rarity, imitability, and substitutability. Value: Google’s search products bring value to their customers because they provide relevant websites promptly. Google has achieved the top market share in the search industry precisely because their product is rare. They are able to provide excellent links in the first few results for both well-known subjects. As mentioned in the Value Chain section, Google excels at directing a large quantity of visitors to websites using its AdSense program. Many business are dependent upon the traffic AdSense brings to their website to generate income. For the advertisers this increased traffic translates into increased sales and directly helps the bottom line. Rarity: Google’s search offerings are rare because of the relevancy of the results. Microsoft and Yahoo, Google’s main competitors, simply do not provide links that are as useful as Google’s. Google’s website features a minimalistic design, which is uncommon. Most websites feature some sort of banner advertising and are littered with hundreds of words. The Google home page can only contain 28 words as a policy established Sergey Brin and Larry Page, the company’s founders. This keeps the clutter to a minimum which is a stark contrast to Yahoo and Microsoft’s search home pages. Google faithfully adheres to the provision in the mission statement which recognizes that “advertisements should not be an annoying interruption”. This rare service is testimony to their charge to never “compromise…user focus for short-term economic gain”. Imitablility: Google’s results are not easily imitated because of the large infrastructure requirements to serve the relevant pages quickly. Google has servers all over the world all synced up and all running on a very large quantity of RAM, fast computer memory. With each search Google refines its results so that the search engine gets “smarter” and caters to people’s individual preferences. Since Google has the largest market share, their search engine can effectively learn more quickly than competitors’ products. Google’s operations exhibit path dependency because it takes time to collect the data to provide results and even more time to analyze both the content and users reactions to the results. Without going through a process of refinement over a significant period of time, a competitor could not replicate Google’s search results. Google has used its analytics tools to help understand the social complexity of the meaning of keywords to specific groups of users. For example, one word like mouse has a variety of different meanings with each meaning being most important to certain people. Google’s minimalistic interface is physically unique and has remained different because the competitors value advertising money more than user experience and devote larger swaths of screen real estate to graphical and motion ads. Some of Google’s success is due to its strategic management or simply to the luck of being at the right place at the right time. This causal ambiguity leads to the belief that perhaps the time to start an internet search company was in the 1990’s and it would be vastly more difficult to gain market share in a competitive environment where users are used to the novelty of Google’s interface. Substitutability: There are different ways of organizing and accessing information, and right now searching the internet is arguably the best for retrieving information efficiently. Google does not confine itself to the search product it is most well known for and has special applications for browsing different kinds of information such as its Shopping, Books, and Music applications. Google consistently delivers relevant results at blazing speeds with minimal hassle. These three competitive advantages set its core search functionality apart from the competitors whose web portals simply can’t keep up. Google should be able to sustain its competitive advantages through the foreseeable future, but it will need to continue to innovate new ways to diversify its advertising business so the company is not dependent on solely the AdWords service.