What is Google’s business model?
The answer is complex because it makes up of lots of different factors. The top 10 principles of Google’s corporate philosophy is what keeps them doing what they do best. (Gamble, 2010, pg. C-175).
1.Focus on the user and all else will follow.
2.It’s best to do one thing really, really well.
3.Fast is better than slow.
4.Democracy on the web works.
5.You don’t need to be at your desk to need an answer.
6.You can make money without doing evil.
7.There’s always more information out there.
8.The need for information crosses all borders.
9.You can be serious without a suit.
10.Great just isn’t good enough.
Their mission statement is to organize the world’s information and make it universally accessible and useful. (www.google.com). These 10 principles have helped them achieve their goal within their mission statement. Google has kept it simple but efficient. These 10 principles have guided them from the beginning and it has work. They don’t need to fix something that is not broken. Examine the financial reports in the case to determine the company’s profitability, liquidity, leverage and activity ratios. Based on these ratios what is your assessment of the company’s performance? Justify your answer?
Profitability ratios are measures of performance that indicate what the firm is earning on its sales or assets or equity. There are the operating profit margin, net profit margin, return on total assets, return on equity, and basic earning power ratios. (Mayo, 2007).
Operating profit margin = Earnings before interest and taxes/Sales
8,381,189/23,650,563 = 35.4%
Net profit margin = Earnings after interest and taxes/Sales
6,520,448/23,650,563 = 27.5%
Return on total assets = Earnings after interest and taxes/Total assets
6,520,448/40,496,778 = 16.1%
Return on equity = Earnings after interest and taxes/Equity
6,520,448/36,004,224 = 18.1%
Basic earning power = earnings before interest and taxes/Total assets
8,381,189/40,496,778 = 20.6%
Leverage ratios measure the firm’s use of debt financing. There are two ratios; debt/net worth ratio and debt ratio. (Mayo, 2007).
Debt/net worth ratio = Debt/Equity
4,492,554/36,004,224 = 12.4%
Debt ratio = Debt/Total assets
4,492,554/40,496,778 = 11.0%
Activity ratios measure how rapidly the firm is turning its assets into cash. The two activity ratios are inventory turnover and receivables turnover. Google does not have any inventory so there is no inventory turnover. (Mayo, 2007).
Receivables turnover = Annual sales/Accounts receivable
23,650,563/3,178,471 = 7.4%
Liquidity ratios measure the ease of which assets may be converted into cash without loss. There are two liquidity ratios; quick and current ratio. (Mayo, 2007).
Quick ratio = Current assets – Inventory/Current liabilities
29,166,958-0/2,747,467 = 10.6%
Current ratio = Current assets/current liabilities
29,166,958/2,747,467 = 10.6%
Since Google does not have any inventory, the quick ratio and current ratio is the same. This shows that Google does have more assets than current liabilities. Overall, Google is doing extremely well all over the board. Their debt ratio is low sitting at 11 percent. They paid their bills on time because their receivables turnover is sitting at 7 percent. Investors know that Google is a good company to buy stock into. Perform a SWOT analysis of Google.
Number one search engine with established name
Simple interface-user friendly
Their interface has 88 different languages-Global usage
Localized search results
Contextual ads targeted by click fraud
Can’t expand to offline products
Acquisitions of other business
Increase online advertising
Alliances/partnerships with other companies
Launched their own operating system
Google TV Threats
Yahoo, Microsoft, and Amazon
Describe Google’s value chain. What is the source of the company’s competitive advantage?
Since Google does not have any “raw” materials to process into finished goods like a traditional company, their value chain is different. Ben Morrow (2009) their value chain is 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 (finished good). Their added value is that they know where to direct the users to their sites that they needed to go.
The source of Google’s competitive advantage is learning by doing as stated by Hal R. Varian, Google’s chief economist (Lohr, 2008). Basically, they arelearning from their competitors. For example, with Microsoft antitrust problems, they are now making antitrust training is mandatory for Google managers (Lohr, 2008). Some of Google’s competitive advantages are their value, rarity, imitability, and substitutability. Value because it is part of their value chain. Rarity because their user interface is so simple and user friendly. Also, it is hard for competitors to imitate 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. (Morrow, 2009).
Lohr, S. (July, 7, 2008). The New York Times. Google, Zen Master of the Market. Retrieved on April 11, 2012 from http://www.nytimes.com/2008/07/07/technology/07google.html?pagewanted=1&_r=1. Mayo, H. (2007). Basic Finance: An Introduction to Financial Institutions, Investments & Management: 9 Edition. Thomson: United States. Morrow, B. (Feb. 22. 2009). Internal Analysis of Google Inc. Retrieved on April 11, 2012 from http://www.benmorrow.info/research/internal-analysis-of-google-inc/. Thomson A., Peteraf, M., Gamble, J., & Strickland, A.J. ( 2012). Crafting & Executing Strategy. McGraw-Hill.