Google's Competitive Advantage & Strategy
Did You Know?
It is estimated that Google's data centers requires 260 megawatts (1 megawatt = 1 million watts) of power. As a reference, it is believed that a single megawatt can power 1000 homes; which no longer holds much credibility due to changing energy requirements in the modern world.
Google Inc. is an Internet giant with a record $22.9 billion in advertising revenues in 2009 and the indisputable leader in Internet search. In October 2013, Google's shares surged to a record high of more than $1,000 per share. By comparison, it's initial public offering in August 2004 was at $85 per share. In less than 10 years, Google's share price has increased nearly 1200%!
Google's mission is to organize the world’s information and make it universally accessible and useful. Google Inc. was founded and incorporated in 1998 with its sole focus on its successful search technology. Since then, Google has greatly expanded its large portfolio of products and services beyond Internet search.
Undoubtedly, the sustained competitive advantage of Google is remarkable and a feat worthy of emulation by its competitors.
Google operates in a very competitive environment. With its plethora of products and services, Google faces competition from organizations of different industries. Google’s sustained competitive advantage is evident in a few ways, particularly in its superior infrastructure. Despite Google’s secrecy, Royal Pingdom reports that Google owns 36 data centers worldwide in 2008 with expansion plans to different geographical sites such as Taiwan, Malaysia and within the United States. An estimated 900,000 servers run in the data centers, with the figure envisioned to be 10 million in the future.
In the 3rd quarter of 2013, it was revealed that the Internet giant spent $2.3 billion on infrastructure from the announcement of its financial results. This is a stark increase of nearly 50% as compared to a year ago.
Powerful Search Engine
Even if it’s earliest forms, Google’s search engine received critical acclaim, with PC Magazine naming it in its list of “Top 100 Web Sites and Search Engines for 1998”. Between the year-end 1998 till early 1999, the number of queries increased from 10,000 to 500,000 queries daily. Since then, the search engine has been refined and enhanced with newer features. In 2010 alone, there were 516 improvements to search, such as Instant Search that provides dynamic results.
Undoubtedly, it's the best search engine available that edges all its competitors, the biggest competitors being Microsoft's Bing and Yahoo Search. Google handles more than 3 billion searches daily, which is a market share of about 67% in 2012. By comparison, Bing and Yahoo search holds a market share of about 16% and 13% respectively in 2012.
Extensive Portfolio of Products & Services
Google’s constant pursuit to expand its portfolio of services and tools is also evidence of its sustained competitive advantage. Since its incorporation, Google has also acquired over 100 companies to expand its services, notably the popular video sharing web site, YouTube in October 2006 and Motorola Mobility in August 2011. YouTube serves more than 800 million unique visitors a month and holds a leading market share of more than 40% in online video. This staggering figure 20 times greater than it's nearest competitor, Youku in China.
Google also encourages its staff to exercise their creativity and innovation, that can contribute to the formation of new products and ideas. No doubt, it is one of the companies many yearn to work for.
Resource Based View (RBV) of Google
Based on Resource Based View (RBV), an organization is able to gain sustained competitive advantage if its resources fulfill the following criteria of being valuable, rare, imperfectly imitable and non-substitutable. This is commonly known by the acronym "VRIN".
Valuable Resources – Google is best known for its search engine. The search engine has been Google’s most valuable resource, driving advertisements which accounts for a 96% of Google’s $37.9 billion revenue.
Employees are also one of Google’s valuable resources. The lively and creative company culture has been important in the high-efficient operations, resulting in the creation of the many innovative services and tools.
Rare Resources – Google has a large portfolio of patented technology and the numbers of patents held have been increased with the acquisition of Motorola Mobility in 2013. It is reported that the acquisition has provided Google with an extra 24,000 patents.
In-Imitable – Google’s scale of its infrastructure are not easily imitated. As described in Section 3.1, Google does not disclose much about its infrastructure but is estimated that to own a huge number data centers and servers worldwide. It is also difficult to duplicate the success of Google as it was founded in the 1990s when the market was less saturated and competitive.
Substitutability – With its clean, minimalist user interface, Google Search offers an unparalleled way of retrieving information quickly that is difficult to substitute.
Using RBV, it can be determined that Google sustained competitive advantage is achieved through the resources that it has. These resources are in-imitable and difficult to substitute.