Google: Question 1-Business model

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Google: Question 1-Business model

Post  aiko on Sun Oct 16, 2011 11:30 am

Business model

Google’s revenue stream is not as diverse as Apple and Microsoft.
Do you think this is sustainable?
Should they seek other revenue streams?
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Google Business model

Post  Laurent Corigliano on Mon Oct 17, 2011 6:17 am

Hi,

First, thanks a lot for providing the files.

Concerning this first question about Google business model sustainability, I think Google should not be worried. Indeed, many reasons for that:

- Google is still growing very fast, the year on year growth rate is about 20-25%, which is quite a lot and enable them to be sustainable.
- Then, even if that's true they are doing around 97% of their revenues thanks to ads, we should still keep in mind that they really diversify the way they reach customers thanks to Adwords and Adsense: Search engine, Gmail, Google docs, Picasa, google earth, Google +, all these products that we use can create value for them. So if the revenue streams are not as large as Apple or Microsoft ones, the audience they reach is massive which is essential when you are doing online ads.
- Third, the online market share for advertisement is still quite low, around 10%. Indeed, there are still market shares to capture from TV, Press, Radio, Magazines. This is good for Google Future, as the market is not mature yet.
- They also try to diversify there activities, they have online ads, but they also have services for enterprises, they are engaged in the online TV thanks to Google TV, they have a think-tank called Google Ideas to create some new crazy products...

To sum up, I think they still have a very good market position, and even if the competition is getting fierce, I'd say they possess all the tools to react properly.

Laurent
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Google Business Model

Post  patrick.cato on Mon Oct 17, 2011 7:58 am

Google offers free services (e.g. Google search, Google books etc.) and their business model is based on marketing their users to third parties for advertising purposes. In short, Google heavily relies on that stream. It is also a matter of fact, that Google offers a free operation system (Android) for smart phones. Google admitted in 2010 that Google made 1 billion US Dollar revenues alone for only advertisement on smartphones.

I think that Google only works because they offer a very good service for free and thus attracting millions of people. If Google would change their business model that would mean that they might get a diversified revenue stream, but the revenue stream could be less. For instance experts say Google could charge for its Android platform as there are so many satisfied users. But then companies as HTC would probably start to develop their own system and thus reducing the advertisement income stream. This example is valid for all the other products such as Google docs.

I think Google does enough research in many areas such as autonomous cars, mobile pay system to be able to profit from new trends. I also think that you cannot compare Apple with Google, since Apple is a hardware driven IT Company, whereas Google mainly offers software related services.
Overall, I think Google has mainly to concentrate on their main business and this is providing information and making Google a "one-stop-shop".
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Re: Google: Question 1-Business model

Post  Mu Jou on Mon Oct 17, 2011 8:01 am

As Laurent mentioned before, the market share of online advertising is low, around 10% til now.
There must be huge range to explore and grow in next decade.

One of the good news would be that the online advertising is still growing!! Smile
Here is one evidence from US.
check this news

The style, way, and channel to get information keeps on shifting continuously to online part.
I always like to say the "pure-blood internet generation" is coming. (the ones born after 90's, with internet & mobile device as tap water & air.)
Their consuming behaviors would be in charge of the coming markets.
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Google business model

Post  chaohungchen on Mon Oct 17, 2011 8:06 am

I think Google still try to integrate many Google's product with Adwords which is how they earned in business model.
For example, when you use Gmail to read your mail, there are many Keyword Advertisement based on different words in your mail.
So it means that Google can use variety ways and product to stimulate the growth on sales of Adwords.

I think Google will still develop many different products which can integrate with Adwords , like some advertisements in Google Docs,or in Google App Engine.
And Google have been used the same business model which gained profits from search engine's Adwords since Google was founded.
Therefore,I think that Google's business model is sustainable.
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Re: Google: Question 1-Business model

Post  DennisProesch on Mon Oct 17, 2011 8:10 am

I think as more and more people grow up with the internet the market size will grow but these people will also be more and more accustomed to the ads presented online. Most people today dont even take a look at the yellow highlighted boxes while using google any more. Furthermore the internet makes the products performance visible much faster than it was possible in the past and therefore most customers will not believe the advertisements as the information put online by other users seems much more reliable to them! I think it is important for google to acknowledge that ads are going to loose its importance and UGC will be the most important way of getting users to buy a specific product.
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Re: Google: Question 1-Business model

Post  Xiaowei Wen on Mon Oct 17, 2011 8:38 am

Thanks for your interpretation by data, which is very persuasive~but about the 2nd reason you listed--when you say Google really diversify the way they reach customers, how many products do you think are successful in attracting customers(users)? As you mentioned in our Q3 (G's experience) that, you dont really like Google buzz and docs, and till now few people get used to Google+...sooo,do you think the way of diversity Google chose is really a large revenue stream for it?
Laurent Corigliano wrote:Hi,

First, thanks a lot for providing the files.

Concerning this first question about Google business model sustainability, I think Google should not be worried. Indeed, many reasons for that:

- Google is still growing very fast, the year on year growth rate is about 20-25%, which is quite a lot and enable them to be sustainable.
- Then, even if that's true they are doing around 97% of their revenues thanks to ads, we should still keep in mind that they really diversify the way they reach customers thanks to Adwords and Adsense: Search engine, Gmail, Google docs, Picasa, google earth, Google +, all these products that we use can create value for them. So if the revenue streams are not as large as Apple or Microsoft ones, the audience they reach is massive which is essential when you are doing online ads.
- Third, the online market share for advertisement is still quite low, around 10%. Indeed, there are still market shares to capture from TV, Press, Radio, Magazines. This is good for Google Future, as the market is not mature yet.
- They also try to diversify there activities, they have online ads, but they also have services for enterprises, they are engaged in the online TV thanks to Google TV, they have a think-tank called Google Ideas to create some new crazy products...

To sum up, I think they still have a very good market position, and even if the competition is getting fierce, I'd say they possess all the tools to react properly.

Laurent
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Re

Post  patrick.cato on Mon Oct 17, 2011 8:42 am

Dennis, I agree that the importance of the AdWords will shrink, but that doen't mean that the business model changes. Google will continue to make their money thorugh selling their users to third parties. Today it is AdWords, in future the advertisement might be in Google Plus "You friend bought this product XYZ -Click here"
As google is collecting a lot of data of their users, the data could also be sold to other companys for direct marketing purposes. Also google tries with Google Chrome to avoid adblockers and collect more user specific data.
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Re: Google: Question 1-Business model

Post  KEISLER Romain on Mon Oct 17, 2011 8:48 am

With share of queries exceeding 90% in countries such as France, Germany and UK, 65% in the US, Google detains a set of tools that give legitimacy to both of its main revenue streams: Paid listing and Advertisement.
We could all agree that the new services offered by Google such as Google map, You Tube, Google + are still ways through the “Charge a third parties” strategy to get more value from those two revenue streams.
Besides, it seems that Google always succeed first to surpass its competitor on the technological aspect, get an important user base, to then make its products valuable on the business market.
Google + for example aims to correct numerous defects of its main competitor: Facebook (e.g. the circles features: “put your friends from Saturday night in one circle, your parents in another, and your boss in a circle by himself”) and is for the moment not open to businesses and has no advertisement on the page, which will certainly change when the number of users will be sufficient.
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Reply with quote Re: Google: Question 1-Business model

Post  rio ohmori on Mon Oct 17, 2011 12:59 pm

Hi guys,
Though it seems their business model will be working for certain period, I personally do not recommend the company to rely on majority of their revenue to same activity. We will never know what will take over that part in the future. In that extent, I believe current Google's expansion to cloud computing, social networks, and etc is good. That while advertisement is generating big revenue, they are expanding to different services which might generate different source of revenue in the future.

I like the idea that 20% of employee's time is spent on new project.
When earthquake and tsunami hit Japan, google customized their person finder in 2 hours after earthquake. Some article says, this was done by 20% of time. But some article says, it was purely google's mission to organize the world's information and make it universally accessible and useful. Either way, it helped a lot to find people who are surviving.

Rio
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Google business model - diversification

Post  Laurent Corigliano on Mon Oct 17, 2011 1:13 pm

Hey Xiaowei,

The all idea about diversifying the product offer is to create an internet eco-system in which you cannot "live" without Google. That means, if you are used to using Google products, first Google will be ever more efficient in doing relevant ads for you, and second it will create deeply rooted habits in the way you use the Internet, so that they really capture durable market share and become ever more sustainable.
yet, there are several hundreds of Google products created, as a consequence all of them are not successful I agree, but I still believe in the idea of creating all whole internet eco-system. The issue with Google + is a little bit more complicated, and I think that's part of Q2 so I'll continue on this part!
Cheers!



Xiaowei Wen wrote:Thanks for your interpretation by data, which is very persuasive~but about the 2nd reason you listed--when you say Google really diversify the way they reach customers, how many products do you think are successful in attracting customers(users)? As you mentioned in our Q3 (G's experience) that, you dont really like Google buzz and docs, and till now few people get used to Google+...sooo,do you think the way of diversity Google chose is really a large revenue stream for it?
Laurent Corigliano wrote:Hi,

First, thanks a lot for providing the files.

Concerning this first question about Google business model sustainability, I think Google should not be worried. Indeed, many reasons for that:

- Google is still growing very fast, the year on year growth rate is about 20-25%, which is quite a lot and enable them to be sustainable.
- Then, even if that's true they are doing around 97% of their revenues thanks to ads, we should still keep in mind that they really diversify the way they reach customers thanks to Adwords and Adsense: Search engine, Gmail, Google docs, Picasa, google earth, Google +, all these products that we use can create value for them. So if the revenue streams are not as large as Apple or Microsoft ones, the audience they reach is massive which is essential when you are doing online ads.
- Third, the online market share for advertisement is still quite low, around 10%. Indeed, there are still market shares to capture from TV, Press, Radio, Magazines. This is good for Google Future, as the market is not mature yet.
- They also try to diversify there activities, they have online ads, but they also have services for enterprises, they are engaged in the online TV thanks to Google TV, they have a think-tank called Google Ideas to create some new crazy products...

To sum up, I think they still have a very good market position, and even if the competition is getting fierce, I'd say they possess all the tools to react properly.

Laurent
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Google business model sustainability

Post  Laurent Corigliano on Mon Oct 17, 2011 1:20 pm

Hey,

To continue with patrick's arguments, I'd also like to add that even if ads through the search engine could become less important, the display sector and the mobile sectors are booming nowadays. That means, Youtube and Android are two key products that will continue to boost Google growth, and both can use Adwords to manage the ad campaigns. And there is still a lot of space for online advertisement (by for example capturing market shares from TV thanks to display or expanding Google's online market share thanks to mobile apps), so I still believe in Google's business model in the long run

patrick.cato wrote:Dennis, I agree that the importance of the AdWords will shrink, but that doen't mean that the business model changes. Google will continue to make their money thorugh selling their users to third parties. Today it is AdWords, in future the advertisement might be in Google Plus "You friend bought this product XYZ -Click here"
As google is collecting a lot of data of their users, the data could also be sold to other companys for direct marketing purposes. Also google tries with Google Chrome to avoid adblockers and collect more user specific data.
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Re: Google: Question 1-Business model

Post  Melvin Loggies on Mon Oct 17, 2011 1:32 pm

We have to keep in mind that Google already has a market share of 30% in the online advertisement industry(although Laurent says it's 10%, the video provided by Aiko says 30%). This means that there aren't a lot of opportunities for Google to increase it's market share, especially if we keep in mind that there have arrised a lot of competitors(companies who gain their revenue through third parties) for Google in the last couple of years. Since Google only has 2,66% market share in total advertisement and the internet is still becoming more important in nowadays life, this is the place to be to grow market share.
But this is not only a opportunity for Google, also for new companies. Since a few years companies with a free business model are popping up. The demand of advertisers is rapidly growing, while the supply is growing slower. At the end there will be an overdemand, causing that Google and other companies gain barely no revenue through its users(via third party advertisers).

For this reason I believe Google should expend its services and maybe should focus on other markets. For example they could focus more on hardware (a better version of the Google Phone? Tablets?) This would broaden their revenue stream and will make Google less depended on advertising.
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Google market share and Hardware expansion

Post  Laurent Corigliano on Mon Oct 17, 2011 1:41 pm

Hey,

Sorry I forgot to precise that it was 10% in european markets (with some fluctuations, for example higher in UK...).

Yet, I think the idea of hardware can be good, and that's perhaps what they are trying to achieve with the acquisition of Motorola. But I think it's quite dangerous as Google is from the beginning an Internet company, a pure player, and doing hardware is way different! We need other staff, more product engineers, marketing and design will become really important in the product process.. the ways Apple and Google work are really different, and if they try to do so, they should first ask themselves if that really fits their business model.

Melvin Loggies wrote:We have to keep in mind that Google already has a market share of 30% in the online advertisement industry(although Laurent says it's 10%, the video provided by Aiko says 30%). This means that there aren't a lot of opportunities for Google to increase it's market share, especially if we keep in mind that there have arrised a lot of competitors(companies who gain their revenue through third parties) for Google in the last couple of years. Since Google only has 2,66% market share in total advertisement and the internet is still becoming more important in nowadays life, this is the place to be to grow market share.
But this is not only a opportunity for Google, also for new companies. Since a few years companies with a free business model are popping up. The demand of advertisers is rapidly growing, while the supply is growing slower. At the end there will be an overdemand, causing that Google and other companies gain barely no revenue through its users(via third party advertisers).

For this reason I believe Google should expend its services and maybe should focus on other markets. For example they could focus more on hardware (a better version of the Google Phone? Tablets?) This would broaden their revenue stream and will make Google less depended on advertising.
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Re: Google: Question 1-Business model

Post  LeeAnn on Mon Oct 17, 2011 3:47 pm

If I understand you right, google "reads" your email or docs in order to search for keywords which show them what your interests are. Of course, it will be able to show you better suitable advertisement which is great for the advertiser, but is that what we want? The trend today is to put your whole life on the internet but I think that this will change (or already is changing) and when that happens for real, google will probably have to rethink this part of their strategy.

chaohungchen wrote:I think Google still try to integrate many Google's product with Adwords which is how they earned in business model.
For example, when you use Gmail to read your mail, there are many Keyword Advertisement based on different words in your mail.
So it means that Google can use variety ways and product to stimulate the growth on sales of Adwords.

I think Google will still develop many different products which can integrate with Adwords , like some advertisements in Google Docs,or in Google App Engine.
And Google have been used the same business model which gained profits from search engine's Adwords since Google was founded.
Therefore,I think that Google's business model is sustainable.
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Re: Google: Question 1-Business model

Post  LeeAnn on Mon Oct 17, 2011 3:55 pm

Google current revenue stream depends on the number of people using its services (and seeing the ads). As long as it can keep up the interest of its users, I don't think it is vital to search for new revenue streams (although additional streams will not hurt ;-). Instead, I think they should focus on what they are good at: search results. Making these results even better (i.e. coming up with an even better algorithms which means less non-relevant search results) will bind customers even more to google.
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google business model

Post  aiko on Mon Oct 17, 2011 3:58 pm

It seems that most of the people think Google's current business model is sustainable.
Since google Ad is charge by click, I am really interested in how many people have ever click on the advertisement?

For myself, even I google a lot, and always log on gmail, I never tend to click on the advertise.
I agree with what Dennis had said "people will also be more and more accustomed to the ads presented online".
If this argument stands, do you think google's current business model is still sustainable?
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Re: Google: Question 1-Business model

Post  Lisa Chen on Mon Oct 17, 2011 4:48 pm

Google’s Business Model with Adwords is in my opinion sustainable. They are creating many different services that would also apply Adwords, which would keep Google still sustainable. Google is also encouraging engineers to work on projects of their own choosing which in turn also includes ads.

Furthermore, I think Melvin’s idea of expanding its services to other markets. They have already brought out the Nexus One. Even though it might be so that Google needs more engineers etc etc like Laurent said, but they already have brought one out so that means that the people are available to also create a new improved one.
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What kind of services that you think should expand?

Post  MeiShinLee on Mon Oct 17, 2011 4:56 pm

Melvin Loggies wrote:But this is not only a opportunity for Google, also for new companies. Since a few years companies with a free business model are popping up. The demand of advertisers is rapidly growing, while the supply is growing slower. At the end there will be an overdemand, causing that Google and other companies gain barely no revenue through its users(via third party advertisers).

For this reason I believe Google should expend its services and maybe should focus on other markets. For example they could focus more on hardware (a better version of the Google Phone? Tablets?) This would broaden their revenue stream and will make Google less depended on advertising.
I think your opinion is every interesting!

But do you think that if Google now focus on hardware which will charge from their customers in stead of the "third parties", Google maybe will lose its superior competing advantage - "Free"?

In addition to what Laurent said (it's quite dangerous as Google is from the beginning an Internet company, a pure player, and doing hardware is way different!), I think "free" is the main factor that people use Google's services,so if Google charges from users that maybe will make Google less attractive.

So, do anyone have any comment on Google's developing on other services or expanding on other markets?
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Sum up & Further questions

Post  Ally Feng on Mon Oct 17, 2011 5:20 pm

Thanks everyone for your enthusiastic participation Very Happy I'll try to sum up here to invite further discussion.

Most of you are postive of the sustainability of Google's business model, because they're always trying to incorporate ad in the variety of their products, and also with the belief that online marketing segment is only going to grow bigger and bigger.

But as Aiko and several of you mentioned, the arguments above might be challenged as:
1) consumers get accustomed to ignore ads, but Google only get paid when people click
2) more companies are employing free-business model and using "charge third-parties"(i.e. charge advertisers) strategies to earn revenue, which might lead to an over-demand of advertisers

Therefore, it's interesting to ask:

1) As an Internet user, how's online ads changed your browsing & buying behavior? Do you find the online ad business more volatile after examining your behavior?

2) Dennis metioned that User generated content might become more important than keyword ads. Do you think user will eventually also distrust UGC, as the content is simply another form of industrialized product placement(embedded marketing)?

3) If Google sticks to its free-business model, is it possible for Google to find other revenues in up-sell/cross-sell/bundling ?

4) If Google decided to find a business model by which it could capitalize on its software & hardware expertise, where should it start experimenting? What difficulties might it encounter? (imagine you were the engineer at Google, and this were your 20% free time project)
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Re: Google: Question 1-Business model

Post  r99725051 on Mon Oct 17, 2011 5:29 pm

aiko wrote:It seems that most of the people think Google's current business model is sustainable.
Since google Ad is charge by click, I am really interested in how many people have ever click on the advertisement?

For myself, even I google a lot, and always log on gmail, I never tend to click on the advertise.
I agree with what Dennis had said "people will also be more and more accustomed to the ads presented online".
If this argument stands, do you think google's current business model is still sustainable?

It's more difficult than just a click. They charge by effective click.
Not only a click, they need to concern about how long do clicker stay? Does he really want to view the page or just wrong click?
But this is only a part for their Ad revenue. They also charge for ranking, company who want to be found first will pay the money to buy the position, this is also an easy way to get money from Google.(I'm not quite sure is it still have this business right now)
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Re: Google: Question 1-Business model

Post  patrick.cato on Mon Oct 17, 2011 5:40 pm

1) I am using the adblocker add-on of Firefox, so I hardly get any banners or advertisement. But nevertheless, if I see an add that looks interesting I click on it. But I think I haven't bought a lot because of online adds...

2) I also think that User Generated Content becomes more important. When I book a hotel I always check the opinion of people that have already been to that place. But sometimes people just measure with a different scale or even the ranking is manipulated by bad comments from competitors. So I think although UGC becomes a very important information source, offical sources will still be important.

3) Basically, I think it is hard to charge Google users for services. I think no one would pay for their email account or google plus since there are free substitues. But I think especially with Android google could use Cross Selling effects or bundling effects. Maybe you only get Android with a certain subscription service...

4) I think for google it will be hard to experiment with hardware, since most of the Google employees are programmers. I think google could start to experiment more with mobile services. I would spent my 20 % project time with developing a virtual augmented reality app. The app knows where you are and what you like and the app gives you suggestion where to go. But not in 2D, but in 3D....
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Gmail man video

Post  Laurent Corigliano on Mon Oct 17, 2011 5:58 pm

Hey,

I just saw a quick funny video on the fact that Google "reads" emails.. Apparently it was made by microsoft Smile

I cannot send it directly to the the forum, I got this message "New members are not allowed to post external links or emails for 7 days. Please contact the forum administrator for more information." but if you wanna see it, just go on youtube and search for "GMAIL MAN" video.
Cheers



LeeAnn wrote:If I understand you right, google "reads" your email or docs in order to search for keywords which show them what your interests are. Of course, it will be able to show you better suitable advertisement which is great for the advertiser, but is that what we want? The trend today is to put your whole life on the internet but I think that this will change (or already is changing) and when that happens for real, google will probably have to rethink this part of their strategy.

chaohungchen wrote:I think Google still try to integrate many Google's product with Adwords which is how they earned in business model.
For example, when you use Gmail to read your mail, there are many Keyword Advertisement based on different words in your mail.
So it means that Google can use variety ways and product to stimulate the growth on sales of Adwords.

I think Google will still develop many different products which can integrate with Adwords , like some advertisements in Google Docs,or in Google App Engine.
And Google have been used the same business model which gained profits from search engine's Adwords since Google was founded.
Therefore,I think that Google's business model is sustainable.
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RE:

Post  MeiShinLee on Mon Oct 17, 2011 6:04 pm

r99725051 wrote:
It's more difficult than just a click. They charge by effective click.
Not only a click, they need to concern about how long do clicker stay? Does he really want to view the page or just wrong click?
But this is only a part for their Ad revenue. They also charge for ranking, company who want to be found first will pay the money to buy the position, this is also an easy way to get money from Google.(I'm not quite sure is it still have this business right now)

I agree with you that Google charge by the user's stickiness time.

But I think Google won't change its search result even if someone pay or ask to it.
As Google's famous slogan: "Don't be evil." means that they never manipulate rankings to put our partners higher in their search results. No one can buy better PageRank.
And I think that's the reason why everyone or every company wonder about Google's SEO algorithm. Smile)
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Re: Google: Question 1-Business model

Post  d.alsafi@gmail.com on Mon Oct 17, 2011 6:51 pm

Greetings,

1) This is a very good question. Banners and popping ads are most of the time fed with trackers that slows/damages one's PC system as a result. Therefore I have never opened a banner that pops up in my screen. My online buying habits considerably exceeds the on-store ones. But to be franc, I only proceed through ads followed by a purchase. otherwise almost never.

2) UGC in my opinion is one tool that helps progressing advertisement considerably beside original publicity. But this has to be of a great quantity (the more the better) in order to show reliability for the end users. I e.g. don't rely on rating that are less then 10 individuals concerning a movie in the cinema.

3) If I understand it right, then I would agree with Patrick.

4) It is always bound with risk to enter new industry branches, for instance the hardware. I think the cell phone industry is good option and since google had acquired Motorola for 12.5 billions USD, this seems to be realistic soon. However, I find it more potential in the personal Pad area as they are more comfortable in what concerns information searching, which is what google masters.

Cheers,
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