Google – PESTEL & Porter’s Five Forces Analysis Essay
Google – PESTEL & Porter’s Five Forces Analysis
Google Inc, a global technology company, founded in 1998 by Larry Page and Sergey Brin, is the most popular search engine in the world. Google provides numerous free services and products such as Google search, YouTube, Google Maps, and has transformed how people use and share information.
Google’s business spans from advertising, data analytics, operating systems to technologically advanced devices such as Google Glass, Driverless cars, Solar-powered drones, and was recently named “The World’s Most Valuable Brand” due to consumers perception of Google being a forward-looking company focused on innovation (Bloomberg, 2014).
As of 2013, Google has 43,862 employees working in more than 70 offices in over 40 countries around the world with their headquarters located in Mountain View, California, USA. (2014). For the purpose of this study, I will be basing my analysis of Google in Singapore, its Southeast Asia headquarters which opened in 2007.
The following sections will analyse the various factors that will influence Google’s operations in Singapore, and conclude with recommendations of how Google should further improve to boost its competitive edge.
2.0 PESTEL Analysis
Though little political restrictions affect Google’s operations due to the nature of its business, government stability is a major aspect in Google’s strategic planning. Singapore had been rated Asia’s most politically stable country (Berdzenadze, 2013), and Asia’s most competitive economy in the Global Competitiveness Report by the World Economic Forum (2013).
When the market of operations has political and economic stability, businesses will thrive and in turn advertise more, thus increasing business opportunities for Google.
Google was hailed as being “Recession-Proof” when they continued to post solid earnings through the economic downturn (Quittner, 2008). It is well positioned to weather the downturn, as its services are free to consumers, and advertisers substituted traditional media advertising with online advertising to cut costs.
Regardless, Singapore is widely acknowledged as having one of the best business environments in the world. Ranked as the world’s easiest place to do business (The World Bank Group, 2014) and city with the best investment potential (as cited by Economic Development Board, 2014), Singapore with its sound monetary and fiscal policy attracts many investors.
The more investment dollars pour into a business, the more they are willing to spend on advertisements, which increases business opportunities for Google.
In Singapore where there is high internet penetration rate of 87% and mobile penetration rate of 156% (IDA, 2014), consumers comfortable with technology often see the internet as the first source of product research before making their final purchase, making Google a very important part of the process. To increase the number of users accessing Google’s services from their mobile device, Google released its own Android mobile operating system which now holds 55.8% of the mobile device market share (comScore, 2014). It is thus increasingly important for marketers to influence consumer’s final purchasing decisions by advertising in this space.
However, Google’s infrastructure created to customise and personalise each user’s search experience by storing their personal information has been received with mixed reactions as some find Google’s sale of such information a violation of their privacy. As people’s attitude and concern towards protecting their private data change, Google’s business may face a threat.
Beyond a search engine, Google constantly innovates and develop its wide range of free products aimed at strengthening user engagement.
Technology rapidly advances, and Google actively takes measures to ensure they do not fall behind. According to Bloomberg data, Google has acquired 127 companies in the past three years (as cited by Farzad, 2014). Besides buying companies, such as Waze, a GPS navigation software, and Admeld, an advertising optimisation platform, in a smart defensive play to acquire companies that poses a threat to its business, Google has been acquiring a wide range of technological companies from Humanoid robots to Airborne wind turbines to Home automation devices.
In a bid to strengthen its business, Google is increasingly moving into developing hardware technology that has a tangible presence in consumer’s homes and offices.
It is estimated that Google runs over a million servers in data centres worldwide, with its first Southeast Asia data centre in Singapore operating since 2013, and consumes a huge amount of electricity. Every time someone makes a search or sends an email, they contributes to the electricity bill at Google’s data centre (Tan, 2014).
However, Google argues that they have made the world a greener place considering the electricity consumption for a search in lieu of a drive down to the library. Above all, unlike other companies, Google builds most of their own data centres down to the energy-saving chips it uses, and custom-designs its servers for efficient energy use (Glanz, 2011). Its facility in Singapore uses recycled water for its cooling system.
Although Google is a high carbon footprint business, it has adopted a proactive strategy to hold itself up as a 3ly responsible company by making its facilities environmentally-friendly through generating its own renewable energy from solar panels, wind farms and purchasing carbon offsets by funding green efforts.
From the perspective of law and regulation, the internet is inherently transgressive and difficult to govern since it is global, and information can be instantly transferred at anytime, anywhere. Google’s products collects a lot of personally identifiable information on its users – DoubleClick cookies tracking online footprints, Google wallet storing name, credit card details, and thus how this information is compiled, used or stored are a natural concern.
Google’s data centre in Singapore serves users around the region, and Singapore’s business-friendly approach with the privacy law on international transfers of data that does not restricts transfers to specific countries on their approved list, but instead puts the onus on the company to put in place measures to ensure personal data is transferred to locations with comparable standard of protection, makes compliance issues less complicated than that of Europe’s (Bratby, 2013).
In general, Singapore is a relatively late adopter of privacy laws (The Register, 2014), and is largely reactive rather than transformative. As such, legal issues that may arise in Singapore are likely to be those that Google already has measures or policies in place.
3.0 Porter’s Five Forces Analysis
3.1 Threat of New Entrants
Although the internet has traditionally been viewed as a “low barrier to entry” marketplace, the barriers to entry in the internet search market are high, as it would take a giant step in innovation, and a mammoth starting capital to build a network infrastructure that could compete with all of Google’s services and products. The scale of Google’s businesses has become a significant barrier to entry.
Nevertheless, companies focusing solely on developing a single product or service that Google offers could potentially usurp Google’s dominance in that area, as seen with the Rubicon Project, an advertising start-up which surpassed Google’s Ad Network reach by over 6 million unique visitors (Thomas, 2012).
3.2 Threat of Substitution
Some of Google’s products and services could potentially be substituted, such as users choosing GPS instead of Google Maps, but Google’s primary business is their online search engine, which is difficult to substitute.
Everyday, an average of 5.9 billion Google searches are made (Statistic Brain, 2014). Although there are alternative sources of information such as newspapers, books, television, or radio, the internet is the preferred source for people to retrieve information as it provides information on demand. As of now, the threat of substitution is low as there are no foreseeable substitutions for online search.
3.3 Supplier Power
Google owns its search platform and advertising services tool, thus it has very limited exposure to suppliers. Due to the advertising system used to generate revenue, both the advertiser and search engine user are Google’s customers.
However, websites that have given inventory to Google for sale can be considered their supplier. As websites frequently have their inventory listed across multiple ad exchanges, Google will have to return both quantity of sales and quality of pricing of their buys to maintain the impressions given to them for sale by web publishers. So long as Google maintains strong market dominance, supplier bargaining will remain low.
3.4 Buyer Power
Although internet users are free to switch to alternative platforms, most of Google’s products and services that they use are at no cost to them.
Whereas in the case where the buyer is the advertiser, buyer power is low as there are limited vendors they could spend with. A key feature of Google’s ad buying platform, DoubleClick, is that advertisers can buy ads on 300 different websites with a few clicks instead of making 300 calls or meetings to get the ads on all the websites.
The scale of modern online media buying is staggering as Google provides access to millions of possible sites for advertising. Although Google’s products are not unique, they are at scale, and can make competition difficult for start-up and smaller competitors.
3.5 Industry Rivalry
Google is known for being the best search engine with high relevance within its searches, thus its position as the market leader in the search market with about 80% market share (Nguyen,2012). Though competitors have caught up, and substitution of Google search in favour of Yahoo or Microsoft’s Bing is certainly possible, ‘Googling’ has now been ingrained in people’s mind, and is largely a habit instead of being driven by significant product differentiation.
When Google introduced the Android operating system, they have placed themselves in direct competition with Apple. Though Android phones currently has larger market share than iOS phones, Apple will not easily give in in the battle of mobile operating systems.
Google’s strategy is all about scale and interoperability. With advertising making up over 90% of its total revenue (Google Inc, 2014), it is critical for Google to protect its space, thus its entrance into the browser and mobile operating system market. When one owns the platform, one has the stage. Google tries to own as much of the overall ecosystem as they can so as to lock in its users and keep out competitors. In doing so, it does not need considerable advertising expense to stay and remain on top.
4.0 Conclusion & Recommendations
In terms of PESTEL analysis, I recommend that Google venture into new markets around the region. Singapore is a mature market, thus opportunities to grow further are rather limited due to its market saturation and small population. In essence, it is difficult to justify large advertising spend when it can never attract large reciprocal sales as it simply does not have the population to support it.
However, expansion into emerging markets in Southeast Asia such as Indonesia or Philippines will help its revenue growth. To illustrate, Indonesia has internet penetration at 24% (Statista, 2014), which translate to 60 million users. That is 12 times Singapore’s population. The propensity of growth there is phenomenon. In terms of Porter’s Five Forces analysis, I recommend that Google diversify into other ventures that helps generates income as it is not healthy for the company to rely almost entirely on one source of revenue. With its wide range of free products and services, Google could select a few of its products to further develop as alternative revenue sources such as its VOIP business, or licensing fees for its products.
Google will also need to ensure that it maintains its momentum in the research and development of its search engine to ensure that it is ahead of its competitor. With Microsoft and Yahoo search’s merger, the convergence of technologies will improve their search engines, and possibly catapult Yahoo’s more successful products such as Yahoo Finance and Flickr.
As long as Google’s continue to innovate and stay ahead of its game, they will remain the market leader in the industry.
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