The Business Model Canvas Case: Google

Transcription

1 The Business Model Canvas Case: Google MBA Report Assessment (Words count: 2184) Amine Belmejdoub The Business Model Canvas of Google Inc case. - January P a g e 1

2 Table of Contents Table of content ii List of figures and tables iii Summary iiii I Introduction 1.1 Company Profile - Google Growth....5 II Business Model of Google case 1.1 Business model components identification Business Model Canvas proposition Interaction between different components forming the BMC and how they shape and drive the business....9 III Google BMC evaluation 3.1 SWOT analysis of Google BMC Confrontation Matrix Business Value Chain Model IV - Conclusion..15 References.16 Bibliography.17 The Business Model Canvas of Google Inc case. - January P a g e 2

3 List of Figures and Tables Figures 1. Figure 1: Google revenue growth Figure 2: Google Business Model Canvas Figure 3: Google and main customers interaction triangle Figure 4: Business Model Ontology Canvas Figure 5: SWOT analysis of the BMC Figure 6: Google Value Chain Model Tables 1. Table 1: Confrontation Matrix The Business Model Canvas of Google Inc case. - January P a g e 3

4 SUMMARY The study is aimed at analysing the Business Model Canvas of Google inc. It delineates different components forming Google business model, analyses interactions between those components in order to identify the key constituents shaping and driving Google business. The chapter one outlines a brief introduction about the company and its growth. Whilst the second chapter summarises different components forming Google business model. As a result, Chapter tree proposes a Business Model Canvas for Google Inc, and probes different interactions between its components and how they shape and drive Google business. Finally, chapter four gives an evaluation of Google BMC using SWOT analysis, subsequently a confrontation matrix is used to identify the most important strategic issue the organisation is facing. Then the report goes into shedding light on the company s improved business processes that leads to generating profitable margins based on the distilled outcomes. At the end, the paper suggests some strategic recommendations for Google to sustain its business and stay at the vanguard of the competition. The Business Model Canvas of Google Inc case. - January P a g e 4

5 I. INTRODUCTION 1.1 Company Profile Google Google Inc is a market leader in global technology emphasising mainly on Advertising. Google has substantially changed the way internet users look and share information. Thanks to its first most popular search engine in the world, coupled with other services that enormously respond to customers needs. Founded in 1995 by Larry Page and Sergey Brin, who created this search engine to allow users to find any website or document on the web based on keyword or exact searches. Google provides free services for their users. Other than the search engine, they can also search books on Google Book Search, news on Google News, videos on Google Video (YouTube) and maps on Google Maps. 1.2 Growth Google s sturdy financial position is portrayed in their yearly growth in revenues and cash flow. This strengthens Google due to the healthy revenue generation. In addition, the company possesses many products that are also considered as a robust asset. The following graph demonstrates the revenue growth of Google between 2003 and 2007: Figure 1: Google revenue growth The Business Model Canvas of Google Inc case. - January P a g e 5

6 II Business Model of Google case 2.1 Business model components identification Although there is a lack of consensus regarding definition and construct of business model (Lambert 2008, p.278), the BM could be seen as an abstract representation of an organisation, be it conceptual, textual, and/or graphical, of all core interrelated architectural, co-operational, and financial arrangement designed and developed by an organisation presently and in the future, as well as core products and/or services that the organisation offers, or will offer based on these arrangements that are needed to achieve its strategic goals and objectives (Al-Debei and Avison, 2008). Business models are seen to bridge the gap between strategy (the positioning, objectives and goals of the company) and business processes (involving the understanding and implementation of strategic information), indeed there often exists quite a substantial gap between these two worlds (Osterwalder and Pigneur, 2002, p.77). Google business model can be better perceived if it is divided into the following key areas; Infrastructure Key Partners Key partners for Google comprise suppliers, distributors, the Open Handset Alliance and original equipment manufacturers (OEM). Key Activities Key activities include research and development for both the development of new technologies, features and the improvement of existing ones. There is also noteworthy time spent in the maintenance and management of massive IT infrastructures and products and services. Separately from this, there is work done on marketing, strategy and alliances. Key Resources Key resources for Google would include datacentres, servers and other IT infrastructure, IPs as well as the human resource. Other resources include patents, licenses and proprietary material. The Business Model Canvas of Google Inc case. - January P a g e 6

7 Offering Value Proposition Value proposition represents Google s offering, the company aims to create value for its customers for internet search, advertising, operating systems and platforms and enterprise (Martin, 2014). This is supported through the overreaching principle drawn from the mission statement which is to manage the world s information and make it universally accessible and useful. Principally the value proposition stems from what pain google are unravelling? What gain Google customers are getting? And what is the compelling reason to use Google services? Customers Customer Segment Google customers are segmented into three categories. The Users segment who are able to organize information in convenient ways using Google products and services, the Advertisers who have a cost-effective way to display online and offline ads to customers, and Google Network Members and Other Content Providers who use the Adsense service. Another extended segment may include mobile device users and makers along developers. Customer Relationships Channels to build customer relationships can include sales and support services as well as dedicated teams for larger customers. Channels Channels to reach customers include google.com, google affiliate websites and google Adwords. Channels to reach advertisers and network members include sales and support teams. The Business Model Canvas of Google Inc case. - January P a g e 7

8 Finances Cost Structure Primary costs for Google include the IT infrastructure, people, R&D costs and marketing costs. Revenue Streams The primary revenue stream for the company remains its ad-powered search engine. This totals to as much as 96% of all Google revenue. 2.2 Google Business Model Canvas proposition follows; Given the aforementioned identified components, Google Business Model Canvas could be depicted as COMPANY NAME: GOOGLE Inc DATE: 09/01/2016 The Business Model Canvas Key Partners Key Activities Value Proposition Customer Relationships R&D Build New Products, Web Search, Improve existing Distribution Gmail, Google+ products & Data Partners distribution Open Handset Alliance IOMs for (Chrome & OS devices) Management & Maintenance of massive IT infrastructure Key Resources Datacenters & Servers Targeted Ads using AdWords (CPC) Extended Ad campaigns using AdSense Advertising display management services Automation (where possible) Dedicated Sales for Large accounts Channels Global Sales & Support Teams Customer Segments Internet Users Advertisers & Ad Agencies Google Network Members Mobile device owners IPs, Brand, License & HR OS and Platforms - Android, Chrome OS Multi-product Sales force Developers Enterprises Hosted web-based Google apps Cost Structure Revenue Streams Traffic Acquisition Costs Sales & Marketing, G&A Ad Revenues - Google websites Datacenters operations R&D Costs (mainly personnel) Enterprise Product Sales Free Infrastructure Offering Customers Finances Busines Model Canvas based on Osterwalder & Pigneur (2010) The Business Model Canvas of Google Inc case. - January P a g e 8

9 2.3 Interaction between different components forming the BMC and how they shape and drive the business The business model canvas strengths are about the centrality of capturing and delivering value when designing a business model. Value Propositions will add distinctiveness to the business model. However, it is important that the customer awards value to the proposed value proposition and not the company itself. (Coes, B. 2014, p.3). Based on the results, the Google BMC involves the interaction of multiple components in order to cocreate the value proposition. Basically, answering the question of how a free value propositions made Google rich is sine-qua-non to understanding how Google business concept is shaped and what constitute the business key drivers. The quest to investigating will be even more worthwhile if knowing that the consolidated revenue of Google in 2013 had reached $50 billion and that Google has 620 million visitors daily. In the first place, Google s main truism defining its primer insight about its business model is: Focus on the user and all else will follow, this lead to understand that Google s free services offered endeavour to build a client-base in order to know more about the customers, the more Google knows about its customers the more they are to click on one of the advertisement they show on their pages. For instance, if a customer is searching for cheap flights to London in Google search bar, Google will show paid Ads that are associated to the search topic in the top of search result page. It is argued that the firm could be considered as an intermediary acting to propose bespoke advertising emanating from Ad agencies and different companies (B2B) to target different customers (B2C). The figure bellow demonstrates Google s main relationship and interaction with its main two client segments using its main value proposition; The Business Model Canvas of Google Inc case. - January P a g e 9

10 Figure 2: Google and main customers interaction triangle Potential client Suppliers Consequently, as it can be reasoned from the figure above, besides (B2C) namely internet users who whilst using free Google services they are providing a vast information to google about their preferences, patterns, activities, behaviours, and by using Gmail, they are providing google with the people they are contacting, in other words Google also learns substantially about non-gmail users by scanning s sent to and from Gmail users. This effectively helps target advertisements to everybody. Furthermore, the other segment represented under advertisers (B2B), who are interested in reaching out to the online users represents the lucrative part of Google business story, in fact Google helps this segment to create text-based through Google AdWords, a self-service auction based advertising programme. These Ads appear next to the search result. Most advertisers pay Google on Cost Per Click (CPC) basis, which expounds that advertisers pay when users click their Ads. In the other hand, Google helps advertisers extend their Ad campaigns to the Google Network members websites through its AdSense program. Google Network members get a share of Ad revenues in return. Google provides Display Advertising services through DoubleClick advertising technology. Display advertising comprises of video, text, images, and other interactive ads. Display ads appear on YouTube, Google Finance, and Google Network member websites. The Business Model Canvas of Google Inc case. - January P a g e 10

11 Google also serve the enterprise market through hosted web-based applications called Google Apps. Google Apps include Gmail, Google Docs, Google Calendar, and Google Sites. People need a browser and an Internet connection to use the Google Apps. Google helps most of its customers with a self-serve approach and tries to bring automation where possible. Nevertheless, Google has built a global support team to help advertisers and Google Network members to get the maximum value out of its offerings. Google sales team focus on building relationships with largest advertisers and leading Internet companies. In the channels of the business model, Google multi-product sales force sells campaigns that include Search, Display, and Mobile advertising. Though, Google has developed a Global Sales and Support infrastructure with specialised teams across different industries. Meanwhile, as for key partners, Google has developed Android an open source mobile software platform that can be used by handset manufacturers to install on their devices and by developers to create applications for mobile devices. Google provides Chrome browser for web browsing and working with several OEMs (Original Equipment Manufacturers) to bring computers running Chrome on operating systems. Google business has four key costs elements which are also components of its key activities: R&D, Datacentre operations, Traffic Acquisition, and Sales & Marketing. Google invests greatly into R&D to create new products and improve existing products. Google is estimated to have over one million servers in data centres around the world that process nearly one billion search requests every day. Google has invested heavily in its datacentres and managing their operations continue to be a key cost element. Traffic acquisition costs encompasses money paid to the Google Network websites under the AdSense program and to the distribution partners who distribute Google Toolbar and other products or drive traffic to the Google websites. Google Sales & Marketing costs include the cost of managing global sales and support teams as well as advertising and promotional outflows. Google generates over 96% of its revenues from advertising and this has persisted true for last several years. Nonetheless, Google has developed its Search offering, tapped into Mobile space, trying to get into Operating systems, and has built offerings for the Enterprises, any of them has not yet resulted into major revenue streams. Apple, on the other hand, earned 70% of the revenues from products (iphone and ipad) that The Business Model Canvas of Google Inc case. - January P a g e 11

12 did not existed five years ago. The challenge lies in Google s capability to generate revenues from tangible products, better still, its ability to innovate its business model so that at least 50% of revenue in the foreseeable future will not come from advertising only, but from Google new value propositions in the next five years. 2.4 Business Model Ontology Canvas The BMO describes the characteristics of business models and attempts to explain the whole picture with a focus to have a common language to discuss Google business models in practice, its applicability and usability in business context (Zott et al., 2010). Figure 3. The Business Model Ontology Canvas (based on Fritscher and Pigneur, 2010). The Business Model Canvas of Google Inc case. - January P a g e 12

13 III Google BMC evaluation 3.1 SWOT analysis 3.2 Confrontation Matrix To further analyse the output of the SWOT analysis, using the confrontation matrix allow the identification of the most important strategic issues Google is facing. The Business Model Canvas of Google Inc case. - January P a g e 13

14 3.3 Google Value Chain Model The business value chain model serves to identify areas where Google s information systems improve its business processes that leads to generating profitable margins. Figure 6: Based on Porter. Creating and Sustaining Superior Performance The aforementioned tools extrapolate key drivers that make and shape Google business; namely key strategic resources and process capabilities, coupled with a relentless R&D and HR management, the brand value along with its excellent market policy lead to a formation of a significant value proposition to customers. These components gleaned together form principally Google s core competence (C.K Prahald, 1990) that permits the company to generate a sustainable competitive advantage and dominate 85% of the market share. The Business Model Canvas of Google Inc case. - January P a g e 14

15 IV Conclusion In the final analysis, it is appropriate to say that Google strategy is sophisticated and has delivered expononentially profitable results due to providing principally improved advertising services to a multiple of client segments, however given the fact that the BMC is an internally focused tool which is focusing on what a company delivers, how it will be delivered and what is necessary to make what the company is delivering. (Coes, p 83). The BMC appears to be lacking strategy in terms of competition and other harms outside of the company which may lead to only uncovering one part of the story in this report. In the other hand, some of Google s core strengths (data mining, product integration) may turn to make the firm more unpopular as people despise monopolies. This analysis implies that google should continue its position as a market leader, develop new source of income, cancel unprofitable and unpopular products, reduce legal expenses, continue its aqcuisition strategy and invest heavily to retain and obtain human capital. The Business Model Canvas of Google Inc case. - January P a g e 15

16 References Al-Debei, M. M. & Avison, D. (2010), Developing a unified framework of the business model concept, European Journal of Information Systems, Vol. 19, Issue 3, pp (Osterwalder and Pigneur, 2002, p.77) Coes, B. (2014). Critically Assessing the Strengths and Limitation of the Business Model Canvas (Master s thesis, University of Twente, Netherland). Retrieved from Fritscher B, Pigneur Y (2010). Supporting business model modelling: A compromise between creativity and constraints. Lecture Notes in Computer Science, 5963, Springer-Verlag: Lambert, A. (2008), A Conceptual Framework for Business Model Research, Proceedings of the 21st Bled econference ecollaboration: Overcoming Boundaries through Multi-Channel Interaction, Bled, pp Martin. (2014, December 25). Retrieved January 9, 2016, from Osterwalder A, Pigneur Y (2002). An ebusiness Model Ontology for modeling ebusiness. 15th Bled Electronic Commerce Conference ereality: Constructing the eeconomy. Bled, Slovenia, June Prahalad, C.K., Gary Hamel (1990), The Core Competence of the Corporation, Harvard Business Review, May- June, Zott, & Amit, R. (2008). The fit between product market strategy and business model: implications for firm performance. Strategic Management Journal, 29(1), The Business Model Canvas of Google Inc case. - January P a g e 16

17 Bibliography Amit, R., & Zott, C. (2001). Value creation in e business. Strategic Management Journal, 22(6 7), Anderson, J. C., & Narus, J. A. (2004). Business Marketing Management Understanding, Creating, and Delivering Value. 2. Baden-Fuller, C., & Morgan, M. S. (2010). Business models as models. Long Range Planning, 43(2), Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), Fritscher B, Pigneur Y (2010). Supporting business model modelling: A compromise between creativity and constraints. Lecture Notes in Computer Science, 5963, Springer-Verlag: Chesbrough, H. (2010). Business model innovation: opportunities and barriers. Long Range Planning, 43(2), Chesbrough, H., & Rosenbloom, R. S. (2002). The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spin off companies. Industrial and corporate change, 11(3), Magretta, J. (2002). Why business models matter. Harvard Business Review, 80(5), 86-92, 133. Oliveira MA, Ferreira JJP (2010a). Inspiring disruptive change: A novel approach to modelling the value creation process. A full paper presented orally and published in the International Conference IADIS e- Society 2010 Proceedings: (18-21 March 2010, Hotel Meliã Gaia Porto). Mason, K., & Spring, M. (2011). The sites and practices of business models. Industrial Marketing Management, 40(6), Oliveira MA, Ferreira JJP (2011). Facilitating qualitative research in business studies - Using the business narrative to model value creation. Afr. J.Bus. Manage., 5(1): Osterwalder A, Pigneur Y, Tucci CL (2005). Clarifying business models: Origins, present, and future of the concept. Communications of the Association for Information Systems (AIS), 15, article. Osterwalder A, Pigneur Y (2010). Business Model Generation A Handbook for Visionaries, Game Changers and Challengers. John Wiley and Sons, Inc., Hoboken, New Jersey. Richardson, J. (2005). The business model: an integrative framework for strategy execution. Available at SSRN Santos, J., Spector, B., & Van der Heyden, L. (2009). Toward a theory of business model innovation within incumbent firms. INSEAD, Fontainebleau, France. Uschold M, King M, Moralee S, Zorgios Y (1998). The enterprise ontology. Knowl. Eng. Rev., 13(1): World Economic Forum (2010). The Global Competitiveness Report Zott, Amit, R., & Massa, L. (2010). The business model: Theoretical roots, recent developments, and future research. IESE Business School-University of Navarra, Zott, Amit, R., & Massa, L. (2011). The Business Model: Recent Developments and Future Research. Journal of Management, 37(4), doi: Doi / The Business Model Canvas of Google Inc case. - January P a g e 17