Sunday, September 28, 2008

Porter's 5 forces for Google

Repost from James original in full.


Impact on Google


  • Google is regionally not globally dominant.

  • Competition Elimination and Substitution: Microsoft embedding their search tool into their Explorer browser.

  • Threat of forward integration – Google search may not perform as well with new software releases from Microsoft and Apple.

Barriers to Entry (Potential for New Market Entrants)

  • Yahoo & Microsoft have radically improved their search engines and can on pass/deploy their search tool through their products.

  • There is no such thing as the perfect search engine – thus a better search engine invented by another will critically affect Google – mayhap even mortally as 40% of the company revenue comes from advertising which is driven through the search engine.

  • Online marketing and the rules governing what is good and bad practices (e.g. cloaking <reference>) are still evolving – this could affect Google’s current technology and philosophy.

  • Switching costs are mostly related to hardware (storage of indices and speed of information return) and accuracy related (webbots/crawlers)

  • Search tools are easily scalable.

  • While there is currently not a great degree of ‘legislative interference’ this will most likely change <web reference to Google and Big Brother>

Competitive Rivalry (Degree of Rivalry)

  • <Level>. Rules/ethic have not been defined so the environment is easily exploited or manipulated.

  • Currently there are only a few rivals (Microsoft, Yahoo) so the degree of rivalry is more oriented to an oligarchy – this could bring attention of UN or individual countries as a restriction of trade in the future.

  • Switching costs for most of the search tools are nothing.

  • Brand identity is important (if not paramount – Google has made the language as a noun and a verb)

  • Rival search tools are not dissimilar to Google’s tool.

  • Search tools are also used without overt referencing (which impinges on their discoverability) – eBay’s search tool is Google.

  • Improving on the search engine and its features is a significant task for a large number of highly skilled IT technologists.

Treat of Substitutes

(Product & Technology) Development

  • High. Switching costs are negligible

  • Buyer inclination to substitute is primarily driven by speed and accuracy of the result and also by the overt pushing of ads that are included with the search results and pages.

  • Users of the search tool are demanding more services and complexity or sophistication with the search tool to remain ‘loyal’ to its use.

  • Ad Revenue is directly related to use - - even the loss of a small percentage of use can mean significant revenue loss to Google or the other search generating companies.

  • Technology requires extremely skilled staff – high degree of competition for a limited pool.

  • Loss of company/trade secrets if skilled staff more from one search generating organisation to another.

Buyer Power

  • Use of the search rankings is a significant leverage point by the owners of search tools in bargaining.

  • Loss of ranking has in the past led to costly legal arguments – equivalent of e_defamation_of_character or denial of services <add references>

  • Users of the search tool are becoming more sophisticated and demanding other services also for free.

  • Substitutes are available – and for the same price: free

  • No real reviews are undertaken on what features the web community would like to see so each search company employs researches to straw poll/guess directions.

  • Two client groups – web community wanting to search/locate items and the organisations selling products – have to satisfy both client groups equally.

  • Threat of backward integration?

Blogged with the Flock Browser


Indranil Chaudhury said...

Good Analysis.

Critique like Robert Grant have argued sixth and seventh forces: role of Compliments and Government influence.

Matthijs said...

This analysis is outdated, however 2008 should already have given you a better picture of Google's future. I could remember Google being quit a global back then. What's more, online marketing was a substantial part just as it is now. Not that I'm saying that search engine optimization should be the main activity to focus on since this won't give sustainable competitive advantage.

Indranil, stick to the the five please, yet no research have shown the framework needs an extra force.