Google Business Model - Essay Example

Google’s business model is largely based on advertising. The founders of Google Larry Page and Sergey Brin point out that the dominant business model for most search engines is advertising. During its inception, advertising was the means by which the company sought to stay afloat; in later years, it became the means by which it generated substantial revenues (Spencer). Such advertising is a cheap option for businesses; it is easy for Google to distribute, but very profitable for the company. The fact that other individuals can also generate their money when other users click on their advertisements is a major draw for many investors and businessmen (Spencer). Before long, Google earned its popularity as it soon became the biggest search engine in the world. Google’s business model is also based on innovation. Its brand became of the most popular brands in the cyber world. It was quick to expand its services to include: Google Maps, Google Earth, Froogle, Google Scholar, Google Books, and similar products (Spencer). In maintaining these two business models, Google is sure to stay at the top of the world’s internet products.

Google has posted significant growth in revenues during its 2008 first quarter. It generated revenues of $5.19 billion for March 2008 which is 42% higher than its March 2007 figures. It also posted 3.7 billion revenues from advertising commissions. It had a net income of $1.31 billion with $4.12 per share – up from the year 2007 $1 billion worth of profits and $3.18 per share (Perez, p. 1). With the internet world and its competitors growing at phenomenal rates, Google’s capability of generating profits has been sorely tested; but it nevertheless still managed to register significant return of investments for the past several years. Most of the company’s profits come from the pay-per-click text ads; being the best provider of this type of ad has helped to boost its profit growth (Perez, p. 2).

Google has manifested through its profits that it is a financially sound company and that it has managed to avoid losses and debt financing. It has registered only 7% liabilities while allowing 92.2% to be owned by the stockholders (the University of Bahrain, p. 30). In 2004, Yahoo was noted as a major competitor, however, since then Yahoo has registered 47.1% growth in 2005 and then 22.2% by 2006 (the University of Bahrain, p. 30). These are decreasing trends, in contrast to Google’s significant growth rates.
There are different strategies that Google has relied on in order to build its competitive edge in the industry. Google’s competitive strategy is that it has built high-performance systems which are cost-efficient (Claburn, p. 1). This strategy has ensured that the company enjoys cost advantages over its competitors. Google’s programmers are far more productive than their peers from other web-based companies – due to the custom libraries which the company conceptualized to support the programming of massively parallel systems (Claburn, p. 2). Google’s competitors actually spend four times more in order to make up the difference. Google also builds hardware; and although it does not manufacture computer systems, it orders these to its specifications and then installs these to its systems. This is its hands-on approach to its operations (Claburn, p. 2). Read More