Google Inc. is one of the world’s largest corporations investing in the Internet search, cloud computing, and advertising technologies. Google supports and develops different web services and products. It operates more than one million servers in data-processing centers worldwide and processes more than one billion search queries every day. Google has developed such online products as Gmail mail service, the social Google tools+, and Google Buzz. Moreover, the company possesses the desktop goods, such as the Google Chrome browser, the program to work with photos Picasa, and the software of instant exchange of messages Google Talk. Besides, Google conducts the development of the Android mobile operating system used on a large number of smartphones, as well as the Google Chrome OS and Google Glass. However, the world’s largest Google search engine is a main product of the organization. Thus, this term paper will give a critical analysis of the microeconomic and macroeconomic environment and challenges that Google Inc. faces.
Google Inc. is an American multinational public corporation, a part of Alphabet Holding investing in the Internet search, cloud computing, and advertising technologies. The organization of the world information, ensuring its availability and advantage for everybody, is a mission of the company. However, its informal slogan says, “Don’t be evil”. In 2003, the company moved to the present headquarters in Mountain View in the state of California.
Google is a global organization, which is approved by the data about its position in the U.S. market. According to the Google 10-K Report, the company’s revenues composed $66 billion in 2014. The firm belongs to the Internet Services and Retailing, occupying the second place after Apple. Amazon.com is its closest competitor, which was put on the 4th place in 2015. Thus, the company is a leader in the global computer technology industry.
Profit Maximization for Google
The essence of profit maximization process includes the determination of the price level and production, bringing the greatest profit and focus on it. It can seem obvious to any business. However, very few businesses apply the strategy of effective pricing for the increase in profit. The success of Google in profit maximization is caused by the relevant and effective pricing based on the research and analysis of regular customers. Google establishes the most effective price accepted by its clients.
The financial results of Google in 2014 are great. The income has grown by 11% to $17.7 billion; and the profit made $7.0/share. The advertising sales on YouTube and in a mobile segment continue to support the growth of revenues. However, the decrease in operational expenses connected with the arrival of a new CFO to the organization became the main driver of 2015. After the announced creation of Alphabet and allocation of the main business of Google into a separate segment, a bigger normalization of operating expenses and, therefore, profit maximization in this segment are expected. The forecasts for 2016 state there will be a decrease in revenues; at the same time, a sharp increase of profit and profitability of operations is expected. It is caused by the fact that the company’s business segment “Google Enterprise and Cloud” shows the strong growth rates and starts making profit.
The comparative analysis shows that the shares of the company are traded with a considerable discount to the analogs by the earnings’ multiplier (-40% by EV/EBITDA and P/E). The discount makes 7% by revenue multiple. This proportion looks logical at such a high level of profitability as in Google. It is also important for the firm’s shares to be traded with the notable discount to the two-year average values. The majority of analysts predict the prices’ growth of Google shares in the next 12 months. The upside of the current price for its shares will make 21%; it will reach the level of $771/share. It will lead to the spread of the dominating position of the company in the global scales.
The strategy of prices reduction is the most effective method of preserving clients. However, actually, this approach is very seldom based on the analysis of demand and client base. Google uses another method for the profit maximization, i.e. gradually increasing prices and presenting the goods as the production of the highest class. The psychology of pricing in this company is a critical component of the process of profit optimization. It will suit practically any business. The company’s strategy is aimed at the research of its customers. The management of Google understands that the majority of its regular customers are tolerant to the changes in prices. They will practically not notice the increase of the cost of a favorite product for receiving the additional profit. Studying the company’s customers gives the information by the means of which Google is able to choose and establish the maximum profit and offer the best prices for its clients. The justification of the price increase in front of the public and manipulation of its perception compose the key elements of success for the Google’s strategy. Moreover, the organization uses the differentiation of production, emphasizing the usefulness of products or services, at the same time, increasing prices without losing clients.
Global Markets and Industry Structure
The Internet quickly wins the popularity as an advertising tool for a number of companies. The contextual and search advertising becomes one of the most popular types of Internet promotion. The struggle for customers in the market of a contextual advertising amplifies. The companies use the forbidden methods. Thus, Yahoo! looked through the mails of third-party clients. The leader of the market Google used the personal data of its users and will continue to do it, even despite a judicial ban and discontent of the public.
According to the estimation of experts, the world market of contextual and search promotion had grown by 18.6% in 2014 and made $70.18 billion. However, such a big growth has as well negative consequences. The Internet companies are compelled to target advertising under a specific user that often causes the irritation of the web community. Nevertheless, Yahoo! generates only 2.5% of the universal income in this segment. In 2013, the net earnings composed almost $13 billion. Meanwhile, in 2014, Google consolidated 54.7% of the income from search promotion in the world and earned $38.42 billion on it (Table 1).
Table 1. Statement of financial performance 2009 to 2013
The market of informational technologies in the USA belongs to the monopolistic competition industry. It is characterized by a great number of producers, offering a great deal of differences in the production. The main features of this area structure include advertising and production competition as well as pricing policy. Google Inc. is a leader in the Internet technologies industry, followed by Amazon.com, Liberty Media, eBay, Yahoo, and others. Despite the total failure of the innovative product as the Google Glass, the company steadily improves its positioning in the market. The financial ratio analysis shows that it has a stable growth if compared to that of the industry and a strong liquidity position (Table 2).
Table 2. Financial ratio analysis
Thus, Google is a fast-developing corporation with a great number of offices all over the world. The successful economic and managerial policies of the organization promote the expansion of the range of products and services it offers. Google Inc. has its constant mutual relations with its partners and provides high quality services to its clients.
Ethical and Regulatory Considerations in Google Inc.
Google constantly generates the new ideas and expands the possibilities of existing technologies. The company realizes its responsibility for the safety of its services. Therefore, it strictly observes the confidentiality of its users while developing a new product. It helps the organization to provide the appropriate protection and user support, and follow the main mission, i.e. to organize the world information, having made it available and convenient for use. According to Tan & Tan, there are the following ethical and regulatory considerations in Google.
- The collected information should serve for the improvement of quality of provided products and services. The care for the user is the first principle of the Google’s philosophy. Due to the information provided by users, the company can create really useful services and products. The desire to gain attention and trust of customers does not only stimulate the emergence of new products, but also promotes the development of technologies, in general, and the systems of information security, in particular.
- The developed products should meet the strictest standards of protection of personal data. Google technologies try to take the leading positions in the field of development of information. It also concerns the creation of tools which provide an access to the personal data and allow operating them quickly, without breaking their confidentiality. Certainly, employees fully consider the requirements of legislation in the field of information security.
- The process of personal information collection should be the most transparent one. Google always tries to show which data are used for the personalization of Google services. The employees tell customers what they know about them and also explain how their personal information is considered when granting the Google’s products and services.
- Users can control the use of personal data. Each person differently treats confidentiality and protection of the personal information. The company has found the solution which is suitable for all its clients. They can choose who can have an access to the personal information. Employees consider that such data should not be used. Therefore, they create the products allowing users to export data to other services. Besides, Google neither sells nor transfers the personal information of its customers to the third parties.
- The use of the received information should be the most responsible one. The company fully realizes its responsibility for saving the data entrusted to them by their users. Therefore, the protection of personal information is one of the company’s paramount tasks.
Nevertheless, the abundance of targeting from the Google sometimes also causes a sharp protest of the Internet community. Thus, in May 2012, the European court obliged the company to delete the personal data of users from the search engine. The EU court decision was preceded by the exposures of the ex-employee of the CIA Edward Snowden who accused the U.S. authorities of the use of personal data of the Google, Yahoo, and Facebook clients by means of the PRISM Program. In reply to this, Google has recognized that the searcher automatically analyzes the content and e-mails of Gmail users. However, all data are carefully protected from the unauthorized access.
Analysis of Macroeconomic Environment of Google Inc.
The company is a part of the environment, which has a strong impact on its commercial activity. Marketing focuses its attention on the markets; and the markets compose a part of big environmental space (society). The company’s activity is directly connected with this environment. The world around is constantly changing. Therefore, the organization has favorable opportunities for the growth and development or experiences threats. For the effective reaction to happening changes, it is necessary to carry out the analysis of the macroeconomic environment constantly. The macroeconomic circumstances, in which the company functions, cannot be under a direct influence of the firm. These factors include technical development, economic and social values and norms which are exposed to change eventually. There are the following criteria of the macroeconomic environment which have a special impact on Google.
The economic situation. The Internet as a field of the firm’s activity is the structure poorly depending on the economy. Nevertheless, the general adverse economic situation can affect the price of the Google’s shares in a stock market that will immediately be reflected in the conditions of the corporation. The political situation. Google is affected by the global changes in politics. The shifts in the legislation in the world countries can seriously block the strategy development.
Welfare. The Internet is present in the life of modern people. In this regard, they constantly need the purposeful, fast, and systematized information search. At present, the global network is a part of culture of the modern society. Thus, the considered factor will only promote the development of Google. The physiographic conditions. Google, Inc. is a multinational corporation with a set of branches worldwide. Such a territorial coverage allows receiving the fullest information about the needs and preferences of customers as well as their specific features.
Scientific and technical development. The belief that there are the boundless possibilities of the satisfaction of the most various needs concerning information is one of Google’s values. The scientific and technical development belongs to the factors which help the corporation to trace the innovative inventions to keep up to date and surprise its clients, guessing their desires. International marketing. Carrying out the activity worldwide, the company watches the international situation quite carefully as the success of Google Inc. lies in its multinationalism and prevalence in the world. Therefore, the organization should not lose its partners in the other countries due to the possible international conflicts, etc. Thus, the analysis of the macroeconomic environment of Google, Inc. shows that the firm is influenced by all factors of the macroeconomic environment to a bigger or lesser extent.
Analysis of Microeconomic Environment of Google Inc.
The analysis of microeconomic environment of the company is directed at the analysis of those components of the surrounding with which the organization is in a direct interaction. It is important to emphasize that the firm can have an essential impact on the character and content of this interaction. Thereby it can actively participate in the formation of additional opportunities and in the prevention of threats to its further existence. The elements of the microeconomic environment include suppliers, consumers, competitors, the market of labor, and infrastructure.
Suppliers. The data about the names of the companies, i.e. suppliers, are confidential. This information is not available for a wide distribution. However, it is known that all suppliers of the expensive, latest and most modern equipment of the enterprise are the world known companies. On the one hand, the positive side of this situation is that the corporation receives the qualitative equipment on time. It positively affects consumers of services. However, on the other hand, it is a direct dependence on the supplier. Consumers. The organization works for clients of all age groups and levels of well-being.
Competitors. Google Inc. possesses the first search engine system by its popularity (77, 04%) in the world, processing around 50 million inquiries per month. The total share of Google in the sector of search services in the European market exceeds 90%. The Internet retailer Amazon is a main competitor of this company in online search. Yahoo!, dominating on the Internet at the time when Google did not exist, is falling rapidly. The search share in the USA makes 16.8% and continues to decrease. However, the positions of Yahoo! are very strong in the South-Eastern Asia. In Japan, Taiwan and Hong Kong, the company was the leader on the market, until Google China came there.
Labor Market. In the majority of the world countries, the labor market is filled up with the required staff. It is very difficult to meet the requirements of all states, where Google Inc. leads its activity. A small impact of such a criterion as labor is also explained by the fact that Google constantly conducts the training of its personnel and its retraining. The organization has no problems with valuable shots. In 2014, Google headed the 100 U.S. Best Employers List, annually published by Fortune. In recruitment, the main company’s requirements for the candidates include the ability to work in the conditions of the corporate culture, in particular, in a flat organizational structure and quickly changing environment. A successful candidate should have talent, creativity and passion in order to be ethic and open.
Infrastructure. Google is represented as an on-line giant, which does not have any barriers and is capable of growing the same rates as the Internet itself. At the corporate level, the company throws a challenge down to everything that at least remotely treats the sphere of its business. Thus, the introduction of the new Android product in the market of mobile technologies was a direct competitor of the iPhone smartphone by Apple. The Google Chrome won the customers of the Microsoft Company.
Conclusion and Recommendations
To sum up, Google Inc. owns the first search engine by its popularity in the world, occupying a huge market share. However, the company has a lot of new directions. It should pay more attention to the markets of the countries, where other search engines prevail. Having analyzed the macro- and microeconomic environments of the organization, it is possible to single out the opportunities for its development as well as the possible threats. The possibilities for Google include the increase of Google users and advertising all over the world, new purchases, opening of new markets, the increase of the share on the international market, perfection of technologies, and expansion to the non-Internet markets (magazines, tele channels, etc.). Among the threats, there is the emergence of new competitors and strengthening of the old ones. Moreover, the more personalized and detailed search leads to the problems with the law, as well as international conflicts and legal proceedings.
The future success of the firm’s development will depend on the variety of essentially new products, by which Google will attract its users. In order to create them, it will be required for the company to return to the innovative development. Moreover, the long-term perspectives of the organization open a new virtual reality. It will play an important role in the life of users and consider this segment to be worth investments.