Business Environment

Google technology invention can be compared with the invention of wheel. Today, over time, it is unclear how one could search the internet before Google. Like all ingenious, Google is a very simple thing (Scott, 2008). However, the company success is not only due to the favourable conditions to support technological breakthroughs that were developed a decade ago in Silicon Valley. The young scientists, who have chosen difficult path of entrepreneurship, have been excellent advisors.

Google is a multinational public corporation founded in the USA that invests in Internet search, cloud computing, and advertising technologies. Google maintains and develops a number of Internet-based services, products; the company also derives profit primarily from advertising through AdWords program. The mission of Google is not less than to organize all of the present world information and make it accessible and convenient to use (Vise, & Malseed, 2005). According to BrandZ, Google is the most powerful brand in the world as of 2011; and the most expensive one according to the company Brand-Finance. In 2011, Google was recognized as the company with the best reputation in the U.S., ahead of Microsoft, Sony and other companies (Sutherland, 2011).

Financial results of the corporation in 2012 exceeded all expectations. Company share price increased by 5% and reached $ 738.20. Google revenue for the last full year exceeded $ 50 billion and was estimated $ 50.18 billion, which is almost 25% higher than the revenue for 2011 ($ 37.91 billion). Net income rose from $ 9.74 to $ 10.74 billion.

Today, Google has ceased to be a part of not only American life and culture but of the world community as a whole. 67% of Internet users live outside the U.S., for 77% of the Internet audience English is not a native language. Nevertheless, all of them use Google as a search engine, since Google allows users to find information in any language.

PESTEL analysis is a tool for strategic forecasting, identification and assessment of significant factors of external environment that can potentially affect company activities in the future. That is, it is assessed by external factors of the company (Campbell & Craig, 2005). PESTEL acronym stands for P – political factors, E – economic factors, S – social and community factors, T – technological factors, E – environmental factors, and the last parameter is L which denotes legal factors.

This tool is used to determine the current status or position of an organization in its relations with the external environment and its role in this environment. PESTEL-analysis is used as a basis for strategic planning (Mellahi, Frynas & Finlay, 2005). Therefore, this analysis is rather important for further business planning and its analysis. In this regard model multilateral platform Google is quite remarkable. Advertisers represent a segment which brings the income, while the other two segments – Internet users and content owners receive free offers. The scheme is logical, since the more publicity is provided for users the more income is generated from advertisers. In turn, an increase in advertising revenue encourages even greater number of content owners become partners via Google AdSense.

Firstly, it is necessary to make PESTEL analysis of Google in the global strategy understanding. Therefore, political, legislative and technological factors influence the company in global perspective. Political and legal factors include: a) protection of privacy – request for personal information in the registration and use of services; b) problems with copyright, anti-piracy legislation and active fight against piracy – Google Books, YouTube; c) antitrust law – in many countries, Google takes up to 90% of the search market and contextual advertising. Technological factors involve: working in the field of cyber security; vulnerabilities of Google and other network objects; work on improving the search engine algorithms and processing information – search engine optimization, relevance improvement; expansion of the Internet audience and development of mobile technologies. These factors are relevant the company in its global perspective and influence the whole company, thus, cannot be or with a little chance overcome. The above factors can be ranged by the importance and are depicted in the Figure 1.

Factors Importance for the industry Impact on the company Importance level
Global Factors
Protection of privacy 3 3 -9
Problems with copyright 3 3 9
Antitrust laws 2 3 -6
Cyber-security 3 3 -9
Search algorithms 3 3 9
The expansion of the Internet audience in the world 3 3 9
The development of mobile technologies 3 3 9

Figure 1 – Global factors of PESTEL influence

With PESTEL analysis of Google, first of all, it would be necessary to start from exploration of political (P) and legal (L) factors, since tax policy directly affects Google and its business partners (advertisers). The fact is stipulated by two reasons: 1. not exact legal and financial (tax) status regulated by laws on intellectual property and data laws; 2. no precise definition of the product IT-areas: services, products. The above reasons are reflected in a range of results: 1. any matters related to the areas of law (no common terms of common understanding, joint branches of law): high corruption component, possibility of ambiguous reading; 2. there is no consensus on the number and amount of federal, state and local taxes paid; the ability to use a single tax is limited to the aforementioned reasons; 3. common legal and financial sector vulnerability; 4. privileged position at the expense of policy.

Therefore, the range of political and legal factors that impact Google includes: 1. the policy of deregulation / privatization which affects indirectly by advertisers; 2. the policy of health and labour code; depending on the nature of the law all social taxes influence Google and advertisers performance through taxation; 3. WTO, commercial and antitrust laws indirectly affect Google by advertisers (competition influences advertisers and this, in its turn, affects consumers’ choice); 4. law-making as such – the law on censorship on the Internet: influences Google (blocking services), affects advertisers (lock resource), and consumers (access to resources); 5. general legislative changes to the laws on advertising and intellectual property.

Economic factors impact Google through customers and business environment. Consumers of the company are affected by low level of income satisfaction. 74% of people (the target audience of the company) are not satisfied with their income; nevertheless, the unemployment rate does not exceed 11%. In general, as of 2012, the purchasing power of the world population decreased which led to an increase of purchasing price index. Business (Google itself) is influenced by: inertial growth – forecast estimates on the GDP not to exceed 4%; potential growth and strengthening of ruble presents downside risks to economic growth of the company.

In general, demographic factors largely affect consumers. The structure of the population (in terms of monthly access to the Internet) reaches 70%. High rates of growth almost reached the limits by 2012: Google Inc. has 25% of the search market (including distribution of Android platform and browser Chrome). Most of the daily internet audience is people under 25 (59%). The ratio of the approximate age 25-35 and 35+ is varies respectively from 35% to 65%; The approximate ratio of users by the level of education is 30% to 70% (below the higher and higher education, respectively). Figure 2 below illustrates influence of the audience on Google performance.

Technological factors have little effect on the Google on the market of content advertisement and information, because R & D of the company performed more throughout the corporation. Technology means of access to the Internet have different development in different parts of the world.

Technological factor, indirectly influenced by consumers who are dependent from the economic situation, affects Google performance. At present, the degree of influence is low. This refers to the purchasing power of the population rather than just the design and manufacture of technology products. The range of technological factors that influence Google comprises all technological products that are permitted on the Internet and intense competition in the market of providers (wired and wireless) offering a large number of tariffs for each category of population. Intense competition bears potential risks, since increased cost of services will reduce the purchasing power and the growth rate of technological base.

Ecological factors do not influence Google Inc. as a whole, however, their appearance can change the target audience of the company, customers consumption possibilities etc. Ecological factors that can influence the company performance are: weather and climate changes, catastrophes, attitude towards and support of renewable energy.

PESTEL analysis of Google shows that the company is performing under strong influence of political, legal and technological changes. These are the factors that the given company should always remember about and continuously search for the new abilities to improve and create new products and services. To meet all technological changes and remain the innovator in the area, Google should continue its expansion strategy and focus on developmemt and launching of innovation technologies.

Therefore, critical points of Google performance refer to political and legal spheres (to improve legal situation in the field of IT and Internet experience); economic and demographic sphere (development of Internet access technologies, including mobile technologies). As seen, the primary objectives of the company include: further development of different Internet segments, e-commerce, globalization, changing in the style of life care in the network and re-orientation of services.

The next step of Google analysis is aimed to clarify the achievements and further objectives of the company (Figure 3). Porter’s competitive forces model is probably one of the most commonly used tools for development of individual business strategies. It has already proven its usefulness, especially in the context of “outside-in” analysis. Google analysis of Porter’s five forces is held for the industry analysis and creation of strategic management. This model has five forces that show the intensity of competitiveness and directions of the market, which in complex help to determine the company stability and effect on profits. Porter’s five forces model will help to understand the position of Google in the market and perspectives for further development.

As all other companies, Google uses raw materials which are later processed into the finished goods and sold to the customer. However, its value chain is different from the traditional model as the company does not actually produce any physical products. In case with Google, all evaluable users, who use its search engine to get relevant results in shortest time, are the raw material. Later, the traffic is used to direct those users to the partner sites through text advertisements. That finally leads to certain goods and services sales (Magretta, 2012). Having its own search engine allows Google to enhance its value chain by sorting the visitors according to the key words they use when searching for the product. Later, those key words are used to adapt the website for the target audience and guarantee that the products will be bought on the partners’ website.

To guarantee the effectiveness of its value chain, Google has to take care of its administration, human resources as well R&D and technology. Therefore, it is essential for Google to hire the most qualified professionals. Google infrastructure consists mostly of servers and software, which allows them to perform activities, such as the core operations, distribution, marketing, sales and service. All of them positively affect the company bottom-line, thus contributing to the value chain. Google international business approach provides an opportunity to tailor the products to the local customer’s needs, benefit from differences and salaries, outsourcing, etc. Graphical depiction of Google Inc. Porter’s value chain can be seen in Figure 4.

Formulating its supply chain, web users provide Google with extremely important information that helps the company to enhance the algorithms of search and advertising. Constantly introducing new technologies and offering new services does not only increase the company profit, but serves as a self-promotion that brings new loyal customers. Google possesses a strong competitive advantage coming of a number of internal sources. First of all, the company search engines deliver surprisingly prompt and relevant results, both for the low frequency and high frequency enquires. Owing its AdSense program, Google creates traffic for many companies by directing big quantities of visitors to the partners’ websites. The company product is also rare, because there are no advertising banners and other annoying elements at the main website of the company. Besides, Google possesses extremely powerful service that allows obtaining almost unlimited search results. Finally, Google offers a number of specific applications to search for the particular kind of information (books, music, etc.).

Google was lucky enough to emerge in the right place and at the right time. However, the company earned its fortune for delivering prompt and relevant results, taking care of its customers and offering unprecedented advertising possibilities. The company has strong competitive advantages and no competitors can really kip up with its functionality. Google tailors its products for the local markets and knows how to benefit from cultural diversity. However, the company will always need to innovate and introduce new products to its customers to preserve its success.