Ivan Castillo, Poliane Cruz, SharadhChandran Sethuraju
Google case write-up
1. How did Google create a competitive advantage initially (before 2006)?
There are many types of competitive advantage, and they can be separated into two categories: advantages based on the firm’s position and advantages based on firm’s capabilities.
Advantages based on the firm’s position happen when a company accomplishes superior performance because it was the first to enter the industry. The forms of positional advantage are: positional ...view middle of the document...
Overture was pioneer in this market selling the paid listings on a per-click basis. Google introduced its first paid listings, which it sold on a cost-per-impression basis. Years later, Google adopted a variant of Overture’s cost per click model. They used a weight method that also maximized Google’s revenue. Again they were not the pioneers in the market but they were improving technologies from competitors and growing fast.
Google identified users’ unmet needs and used its internal capabilities to satisfy them. At least, half of the users requests failed to provide suitable results. To improve performance and achieve customers’ needs, Google’s engineers constantly fine-tuned searching algorithms. Google also expanded efforts to attract more advertisers and improved its advertiser features by offering advertisers free software to optimize paid-list campaigns.
Google created value in two dimensions: first, improving search techniques that attended users’ expectations; second, Google’s paid listings network had attracted more advertisers than its competitors.
2. Is search a winner-take-all business?
Google has to decide whether to share its search platform with other competitors or fight with them to death. Google can come to a decision based on how well it satisfies the following three conditions:
Multi-homing costs are high for at least one user side:
Users using search platform can simultaneously use multiple search engines without any cost being involved. Google and its competitors provide them for free. Cost also includes opportunity cost of time being involved. Not much time is wasted when users use more than one search platform simultaneously. Thus multi-homing costs are not high in using multiple search engines, Google search is not a Winner-Take-All business as per this condition.
Users on the side of the network with multi-homing costs should have positive and strong Network effects:
Google search engine acts a connecting platform between search users and advertisers. Google had approximately 24.5 unique million users by mid-2001 and who are growing since then, compared to its competitors who have limited number of users. Advertisers always prefer a search engine that has large number of users. Google sets a huge switching cost to advertisers. Thus due to positive cross-side network effects advertisers will continue to do business with Google until they find another search engine with such large number of users. From the above arguments we can infer that Google search satisfies this condition for Winner-Take-All business.
3) Neither side’s users have strong preference for special features:
There are no unique users among search users who have special needs which is met Googles’ competitors. All the users have a common need that is solution to what they are searching for which is well served by Google search engine. Thus Google satisfies the third condition, therefore is a Winner-Take-All business.