Google – Search, Online Advertising, and Beyond
After studying this section you should be able to do the following:
- Understand the extent of Google's rapid rise and its size and influence when compared with others in the media industry.
- Recognize the shift away from traditional advertising media to Internet advertising.
- Gain insight into the uniqueness and appeal of Google's corporate culture.
Google has been called a one-trick pony, but as tricks go, it's got an exquisite one. Google's "trick" is matchmaking – pairing Internet surfers with advertisers and taking a cut along the way. This cut is substantial – over twenty-one billion dollars in 2008. In fact, as Wired's Steve Levy puts it, Google's matchmaking capabilities may represent "the most successful business idea in history". For perspective, consider that as a ten-year-old firm, and one that had been public for less than five years, Google had already grown to earn more annual advertising dollars than any U.S. media company. No television network, no magazine group, no newspaper chain brings in more ad bucks than Google. And none is more profitable. While Google's stated mission is "to organize the world's information and make it universally accessible and useful," advertising drives profits and lets the firm offer most of its services for free.
Figure 8.1 U.S. Advertising Spending (by selected media)
Online advertising represents the only advertising category trending
with positive growth. Figures for 2009 and beyond are estimates.
Figure 8.2 U.S. Online Ad Spending (by format)
Search captures the most online ad dollars, and Google dominates search advertising. Figures for 2009 and beyond are estimates.
As more people spend more time online, advertisers are shifting spending
away from old channels to the Internet; and Google is swallowing the
lion's share of this funds transfer. By some estimates Google has 76 percent of the search advertising business. Add to that Google's lucrative AdSense network that serves ads to sites ranging from small time bloggers to the New York Times,
plus markets served by Google's acquisition of display ad leader
DoubleClick, and the firm controls in the neighborhood of 70 percent of all online advertising dollars. Google has the world's strongest brand (its name is a verb – just Google it). It is regularly voted among the best firms to work for in America (twice topping Fortune's list). While rivals continue to innovate
through Q1 2009, Google's share of the search market has consistently
grown while its next two biggest competitors have shrunk.
Figure 8.3 Search Market Share, Year-End 2008
Figure 8.4 Change in Market Share, 2007–2008
Wall Street has rewarded this success. The firm's market capitalization (market cap),
the value of the firm calculated by multiplying its share price by the
number of shares, makes Google the most valuable media company on the
planet. By early 2009, Google's market cap was greater than that of News
Corp (which includes Fox, MySpace, and the Wall Street Journal), Disney (including ABC, ESPN, theme parks, and Pixar), Time Warner (Fortune, Time, Sports Illustrated, CNN, and Warner Bros.), Viacom (MTV, VH1, and Nickelodeon), CBS, and the New York Times – combined!
Not bad for a business started by two twenty-something computer science
graduate students. By 2007 that duo, Sergey Brin and Larry Page, were
billionaires, tying for fifth on the Forbes 400 list of wealthiest Americans.
Genius Geeks and Plum Perks
Brin and Page have built a talent magnet. At the Googleplex, the firm's Mountain View, California headquarters, geeks are lavished with perks that include on-site laundry, massage, carwash, bicycle repair, free haircuts, state of the art gyms, and wi-fi equipped shuttles that ferry employees between Silicon Valley and the San Francisco Bay area. The Googleplex is also pretty green. The facility gets 30 percent of its energy from solar cells, representing the largest corporate installation of its kind.
The firm's quirky tech-centric culture is evident everywhere. A T-Rex
skeleton looms near the volleyball court. Hanging from the lobby ceiling
is a replica of SpaceShipOne, the first commercial space vehicle. And
visitors to the bathroom will find "testing on the toilet," coding
problems or other brainteasers to keep gray matter humming while seated
on one of the firm's $800 remote-controlled Japanese commodes. Staff
also enjoy an A-list lecture series attracting luminaries ranging from
celebrities to heads of state.
And of course there's the food – all of it free. The firm's founders felt
that no employee should be more than 100 feet away from nourishment, and
a tour around Google offices will find espresso bars, snack nooks, and
fully stocked beverage refrigerators galore. There are eleven gourmet
cafeterias on site, the most famous being "Charlie's Place," first run
by the former executive chef for the Grateful Dead.
CEO Eric Schmidt says the goal of all this is "to strip away everything that gets in our employees' way".
And the perks, culture, and sense of mission have allowed the firm to
assemble one of the most impressive rosters of technical talent
anywhere. The Googleplex is like a well-fed Manhattan project, and
employee ranks have included "Father of the Internet" Vint Cerf; Hal
Varian, the former Dean of the U.C. Berkeley School of Information
Management and Systems; Kai-Fu Lee, the former head of Microsoft
Research in China; and Andy Hertzfeld, one of the developers of the
original Macintosh user interface.
Engineers find Google a particularly attractive place to work, in part
due to a corporate policy of offering "20 percent time," the ability
work the equivalent of one day a week on new projects that interest
them. It's a policy that has fueled innovation. Google Vice President
Marissa Mayer (who herself regularly ranks among Fortune's most powerful women in business) has stated that roughly half of Google products got their start in 20 percent time.
Studying Google gives us an idea of how quickly technology-fueled market
disruptions can happen, and how deeply these disruptions penetrate
various industries. We'll also study the underlying technologies that
power search, online advertising, and customer profiling. We'll explore
issues of strategy, privacy, fraud, and discuss other opportunities and
challenges the firm faces going forward.
- Online advertising represents the only advertising category trending with positive growth.
- Google controls the lion's share of the Internet search advertising business and online advertising dollars. The firm also earns more total advertising revenue than any other firm, online or off.
- Google's market cap makes it the most valuable media company in the world; it has been rated as having the world's strongest brand.
Questions and Exercises
- List the reasons why Google has been considered a particularly attractive firm to work for. Are all of these associated with perks?
- Market capitalization and market share change frequently. Investigate Google's current market cap and compare it with other media companies. Do patterns suggested in this case continue to hold? Why or why not?
- Search industry numbers presented are through year-end 2008, but in mid-year 2009, Microsoft introduced Bing. Research online to find out the most current Google versus Bing versus Yahoo! market share. Does Google's position seem secure to you? Why or why not?
This text was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensor.