Questions in 2 case study

In their blog posting Google engineers explain:

Google downloads the web continuously, collecting updated page information and re- processing the entire web-link graph several times per day. This graph of one trillion URLs is similar to a map made up of one trillion intersections. So multiple times every day, we do the computational equivalent of fully exploring every intersection of every road in the United States. Except it’d be a map about 50,000 times as big as the US, with 50,000 times as many roads and intersections.

Google no longer publishes the number of pages indexed on its home page, perhaps due to accusations that it is ‘evil big brother’; however, it is generally reckoned to exceed 10 billion.

115Chapter 3 E-business infrastructure

Context

In addition to being the largest search engine on planet Earth, mediating the searches of tens of billions of searches daily, Google is an innovator. All online marketers should follow Google to see the latest approaches it is trialling.

Google’s Mission

Google’s mission is encapsulated in the statement ‘to organize the world’s information ... and make it univer- sally accessible and useful’. Google explains that it believes that the most effective, and ultimately the most profitable, way to accomplish its mission is to put the needs of its users first. Offering a high-quality user experience has led to strong word-of-mouth promotion and strong traffic growth. Putting users first is reflected in three key commit-

ments illustrated in the Google SEC filing:

1 We will do our best to provide the most relevant and useful search results possible, independent of financial incentives. Our search results will be objective and we will not accept payment for inclu- sion or ranking in them.

2 We will do our best to provide the most relevant and useful advertising. Advertisements should not be an annoying interruption. If any element on a search result page is influenced by payment to us, we will make it clear to our users.

3 We will never stop working to improve our user experience, our search technology and other important areas of information organization.

The range of Google services is well known:

� Google Web Search � Movie, Music and Weather Information � News, Finance, Maps, Image, Book and Groups Information

� Google Image Search � Google Book Search � Google Scholar � Google Base. Lets content owners submit content that they want to share on Google web sites.

� Google Webmaster Tools. Provides information to webmasters to help them enhance their understanding of how their web sites interact with the Google search engine. Content owners can submit sitemaps and geotargeting information through Google Webmaster Tools to improve search quality.

� Google Co-op and Custom Search. Tailored version of the search engine.

� Google Video and YouTube � Google Docs. Edit documents, spreadsheets, and presentations from anywhere using a browser.

� Google Calendar � Gmail � Google Reader. Google Reader is a free service that lets users subscribe to feeds and receive updates from multiple web sites in a single interface. Google Reader also allows users to share content with others, and function with many types of media and reading-styles.

� Orkut – a social network � Blogger. Blogger is a web-based publishing tool that lets web users publish blogs.

� Google Desktop. Search own local content. � Picasa. Picasa is a free service that allows users to view, manage and share their photos.

� Google GEO – Google Maps, Earth and Local � Google Checkout provides a single login for buying online. On 1 February 2008, Google began charging merchants who use Google Checkout 2% of the transaction amount plus $0.20 per transaction to the extent these fees exceed 10 times the amount they spend on AdWords advertising.

� Google Mobile, Maps, Mobile, Blogger and Gmail are all available on mobile devices.

Case Study 3.1 Innovation at Google

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Intranets and extranets

InChapter 1, illustrated byFigure 1.4, we introduced the concept of intranets and extranets.

For 2007, Google spent around 12.8% of its revenue in research and development, an increase from less than 10% in 2005.

Google revenue models

Google generated approximately 99% of its revenues in 2007 from its advertisers with the remainder from its enterprise search products where companies can install search technology through products such as the Google Appliance and Google Mini. Google AdWords, the auction-based advertising

programme that enables advertisers is the main source of revenue. Advertisers pay on a ‘pay-per-click’ cost basis within the search engines and within other services such as Gmail, but with cost-per-thousand payment options available on Google Networks members’ web sites. Google has introduced classified style ad programmes for other media, including:

� Google Audio Ads (ads are placed in radio programmes)

� Google Print Ads � Google TV Ads � Google Video Ads, user-initiated click-to-play video

ads.

So, Google’s revenues are critically dependent on how many searches it achieves in different countries and the proportion of searchers who interact with Google’s ads. Research by Comscore (2008) suggests around 25% of searches result in an ad click where sponsored search results are included (around 50% of searches). Of course Google is also looking to increase the number of advertisers and invests heavily in this through trade communications to marketers. Increased competition to advertise against a search term will result in increased bid amounts and so increased revenue for Google. International revenues accounted for approximately

48% of total revenues in 2007, and more than half of user traffic came from outside the US. In 2007, 15% of ad revenue was from the UK alone. 35% of Google’s revenue is from the Network of

content partners who subscribe to the Google Adsense programme. From the inception of the Google Network in 2002 through the first quarter of 2004, the growth in advertising revenues from our Google Network members’

web sites exceeded that from Google’s own web sites, which had a negative impact on its operating margins.

Risk factors

Some of the main risk factors that Google declares include:

1 New technologies could block Google ads. Ad- blocking technology could, in the future, adversely affect Google’s results, although there has not been widespread adoption of these ad blocking approaches.

2 Litigation and confidence loss through click fraud. Click fraud can be a problem when competi- tors click on a link, but this is typically small-scale. A larger problem for Google to manage is structured click fraud where site owners on the Google content network seeks to make additional advertising feeds.

3 Index spammers could harm the integrity of Google’s web search results. This could damage Google’s reputation and cause its users to be dissat- isfied with our products and services.

Google says: ‘There is an ongoing and increasing effort by “index spammers” to develop ways to manipulate our web search results. For example, because our web search technology ranks a web page’s relevance based in part on the importance of the web sites that link to it, people have attempted to link a group of web sites together to manipulate web search results.’ At 31 December 2007, Google had 16,805 employees,

consisting of 5,788 in research and development, 6,647 in sales and marketing, 2,844 in general and administra- tive and 1,526 in operations. All of Google’s employees are also equityholders, with significant collective employee ownership. As a result, many employees are highly motivated to make the company more successful. Google’s engineers are encouraged to spend up to 10% of their time identifying new approaches.

Further reading: Bala and Davenport (2008)

You can find updates on this case study by searching at DaveChaffey.com for ‘Google Marketing updates’.

Question Explain how Google generates revenue and iden- tify future levels of revenue given some of the risk factors are for future revenue generation.

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