No Marshmallows, Just Term Papers
What is Google’s business model? What are its unique resources?
People may think that Google’s business model is complex due to the diverse range of products that it offers. However, almost everything Google does is targeted towards driving people to its search engine. To do this it offers a wide variety of products and content for free, from its core search engine product to application software. Google makes its money by sponsored links from advertisers. Advertisers pay Google for the placement of their ads on the results page and every time a user clicks through an ad. By offering its products for free, Google induces widespread use and allows it to benefit from network effects. Looking at Exhibit 1 we can see that Google earns almost 97% of its revenues from advertisements.
Google has a number of unique resources. Most are intangible but there are a few tangible resources as well. These are:
Culture: Google’s founders have imprinted a unique culture revolving around creativity and commitment to the user experience. Google maintains that it will not compromise its search results to boost short-term earnings. Google is also very particular in who it hires, making sure it recruits people with similar values to current employees, increasing the chances of cooperation and teamwork. Competitors have been unable to replicate Google’s culture due to causal ambiguity and social complexity.
Brand Equity and Reputation: With over a 90% share in many countries, Google has established a top notch brand. Further, this reputation has allowed Google to enter new product categories and quickly become the market leader. This was illustrated by the rapid rise of the Android OS, in a competitive market, to become number one in the smartphone industry.
Intellectual property: Google’s trademark PageRank algorithm is not only difficult to replicate, but also gets better as the web expands and more people add content. Couple this with thousands of incremental...