Paper presented on IAMOT 2009 (Florida - USA). The importance of web search technology, innovation and business model in explaining Google’s success.

1. The importance of web search technology, innovation
and business model in explaining Google’s success
Luís F. A. Guedes
School of Economics, Management, and Accounting at University of São Paulo
Liliana Vasconcellos
Business School, Foundation Institute of Management
Eduardo Vasconcellos
School of Economics, Management, and Accounting at University of São Paulo
Moacir Miranda Oliveira Jr
School of Economics, Management, and Accounting at University of São Paulo
April, 2009

2. Introduction
Research objective
To analyze the importance of web search technology, innovation, and
business model towards Google’s key performance indicators
This study is focused on the search engine technology and its link to
performance factors desired by the users as one of the key factors of
Google’s success
Research methods
• Single case study
• Literature review
• Interviews with Google’s executives
• CEO for Latin America
• Google Brazil Communication Director
• One Senior Financial Analyst from Financial Department
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

3. Factors influencing success of technology-based firms
Key performance
Author Metrics
indicators
Brand value
Public image Bae et al (2000) Company value
Stock price and evolution
Batt (2002); Delaney et al Sales
Sales growth (1996); Banker et al Stock price, stock variation in
(1996); Roberts (1992) time
Local market share (USA)
Market share Delaney et al (1996)
International expansion
Hit et al (2001); Guthrie
Productivity Revenues per employee
(2001)
Arthur (1994); Guthrie
Turn over Best Place to Work ranking
(2001); Batt (2002)
Varma et al (1999); Bae et Market share
Product quality
al (2000); Delaney (1996) Active clients
Profitability Roberts (1992) Profit and Margin
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

4. Google – Company background
 Founded in 1998 by Sergey Brin e Larry Page, both PhD students at Stanford
 Among the 100 biggest companies in the world (2008)
 20.222 employees in 20 offices around the world (2008)
 2008 net income: US$4.3B
MoT  More than 20 petabytes of information processed each day
perspective (~20.000.000 GB)1
 10 hours of video sent by minute to YouTube2
 US$2,4B spent with infrastructure3
 38 data centers worldwide (unofficial)4
Sources: (1) Forbes (Sep, 2007); (2) Oficial Google Blog; (3) Google; (4) Royal Pingdom
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

5. Google – International expansion
159 countries
40 languages
98% of internet traffic
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

6. Search technology and Google’s Success
Competitiveness
criteria – web search
Core web search Incremental
technology innovations Response time to a
query
PageRank Multi language Results accuracy
Hipertext support Results relevance
matching Spelling check
Cloud computing Google suggest
MapReduce Universal search
Outcome
Company value
Brand value
Management and
Profit and margin
Business Model
Sales growth
Stock price and evolution
International expansion
Market share
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

7. Google BUSINESS MODEL – some general considerations
1. Innovation, brand management and efficient operations are key business factors
2. Google initial success is related to:
• an innovative approach to a social need
• outstanding technology
• consistent business model
3. Market research is not among the initial success factors
4. Today unlikely brand extension products are tomorrow’s cash cows (Google
desktop, Google talk, Google Earth…)
5. A strong brand facilitates the international expansion and fosters a strong corporate
culture
6. The ability to evolve is the most important managerial goal of all
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

8. Web search and key performance dimensions
Google web search core technologies
Google web search core technologies Incremental inn
Incremental inn
Key Performance
Key Performance Page
Page Hipertext
Hipertext Cloud
Cloud Map
Map Spell
Spell Google
Google Synonym
Synonym
Dimension
Dimension Rank
Rank matching
matching computing
computing Reduce
Reduce check
check suggest
suggest Search
Search
Accuracy
Accuracy      
Celerity
Celerity     
Relevance
Relevance    
Google web search core technologies Google web search core technologies in Google web search tools
Incremental innovation Incremental innovation in Goog
Page Hipertext Cloud Map
Key Performance Spell
Page Hipertext Synonym Google Universal Geographi- Synonym Google
Google Cloud Map Spell Google Safe Google Unive
Rank matching computing Reduce
Dimension check
Rank matching Search
suggest computing maps
Reduce search cal context Search Scholar
check suggest Search maps sear
  
Accuracy   
    
  

Celerity       
  
  Relevance  
      
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

9. Final remarks: Key firm performance indicators at Google
Key performance
Google
indicators
 Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
Google is among the top 5 more valuable brands in the world since 2006.
Public image
 Company value: Google is the 56th biggest company in the world (FT “Global 500
2008”)
 2008 revenues from sales doubled the 2006’s and reached US$21B
Sales growth
 Q4‘08 Y/Y growth: 18%
 64% of total US web searches in Dec-08
Market share
 In 2008, the majority of the revenue came from abroad.
 Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a
Productivity
year.
 Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
Companies to Work for in USA” (FORTUNE 500, 2009)
Turn over
 There were both 777,427 job applications in 2008 and no volunteer turn over at
Google USA.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
Profitability
Yahoo! net income in 2007 was US$600M (9% of revenues).
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

10. Google’s brand value grew more than 3 times since 2005
Google brand value (US$ billion)
2005 $ 8,46 CAGR: 45%
2006 $ 12,38
2007 $ 17,84
2008 $ 25,59
Source: Interbrand
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

11. Final remarks: Key firm performance indicators at Google
Key performance
Key performance Google
Google
indicators
indicators
 Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
 Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
Google is among the top 5 more valuable brands in the world since 2006.
Google is among the top 5 more valuable brands in the world since 2006.
Public image
Public image  Company value: Google is the 56th biggest company in the world (FT “Global 500
 Company value: Google is the 56th biggest company in the world (FT “Global 500
2008”)
2008”)

 2008 revenues from sales doubled the 2006’s and reached US$21B
2008 revenues from sales doubled the 2006’s and reached US$21B
Sales growth
Sales growth 
 Q4‘08 Y/Y growth: 18%
Q4‘08 Y/Y growth: 18%

 64% of total US web searches in Dec-08
64% of total US web searches in Dec-08
Market share
Market share 
 In 2008, the majority of the revenue came from abroad.
In 2008, the majority of the revenue came from abroad.
 Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a
 Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a
Productivity
Productivity year.
year.
 Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
 Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
Companies to Work for in USA” (FORTUNE 500, 2009)
Companies to Work for in USA” (FORTUNE 500, 2009)
Turn over
Turn over  There were both 777,427 job applications in 2008 and no volunteer turn over at
 There were both 777,427 job applications in 2008 and no volunteer turn over at
Google USA.
Google USA.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
Profitability
Profitability Yahoo! net income in 2007 was US$600M (9% of revenues).
Yahoo! net income in 2007 was US$600M (9% of revenues).
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

12. Final remarks: Key firm performance indicators at Google
Source: Google
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

13. Final remarks: Key firm performance indicators at Google
Key performance
Key performance Google
Google
indicators
indicators
 Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
 Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
Google is among the top 5 more valuable brands in the world since 2006.
Google is among the top 5 more valuable brands in the world since 2006.
Public image
Public image  Company value: Google is the 56th biggest company in the world (FT “Global 500
 Company value: Google is the 56th biggest company in the world (FT “Global 500
2008”)
2008”)

 2008 revenues from sales doubled the 2006’s and reached US$21B
2008 revenues from sales doubled the 2006’s and reached US$21B
Sales growth
Sales growth 
 Q4‘08 Y/Y growth: 18%
Q4‘08 Y/Y growth: 18%

 64% of total US web searches in Dec-08
64% of total US web searches in Dec-08
Market share
Market share 
 In 2008, the majority of the revenue came from abroad.
In 2008, the majority of the revenue came from abroad.
 Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a
 Revenues per employee grew steadily since 2001, in a compound rate of almost 20% a
Productivity
Productivity year.
year.
 Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
 Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
Companies to Work for in USA” (FORTUNE 500, 2009)
Companies to Work for in USA” (FORTUNE 500, 2009)
Turn over
Turn over  There were both 777,427 job applications in 2008 and no volunteer turn over at
 There were both 777,427 job applications in 2008 and no volunteer turn over at
Google USA.
Google USA.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
Profitability
Profitability Yahoo! net income in 2007 was US$600M (9% of revenues).
Yahoo! net income in 2007 was US$600M (9% of revenues).
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

14. Final remarks: Key firm performance indicators at Google
Google International Revenues Evolution
USA revenues International revenues
18% 22% 29% 34% 39% 43% 47% 51%
82%
78%
71%
66%
61%
57%
53%
49%
2001 2002 2003 2004 2005 2006 2007 2008
Source: Google
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

15. Google’s brand value grew more than 3 times since 2005
Key performance
Google
indicators
Key performance
Key performance  Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
Google
Google
indicators
indicators Google is among the top 5 more valuable brands in the world since 2006.
Public image
 Company value: Google is the 56th biggest company in the world (FT “Global 500
 Brand value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
 2008”)value: US$25,6B (2008). According Interbrand “Best Global Brands” report,
Brand
Google is among the top 5 more valuable brands in the world since 2006.
Google is among the top 5 more valuable brands in the world since 2006.
Public image
Public image  2008 revenues from sales doubled the 2006’s and reached US$21B “Global 500
Sales growth  Company value: Google is the 56th biggest company in the world (FT “Global 500
Company value: Google is the 56th biggest company in the world (FT
 2008”)Y/Y growth: 18%
Q4‘08
2008”)

 2008of total USfrom sales doubled the 2006’s and reached US$21B
2008 revenues from sales doubled the 2006’s and reached US$21B
64% revenues web searches in Dec-08
Sales growth
Market share
Sales growth 
 Q4‘08 Y/Y growth: 18% the revenue came from abroad.
In 2008, the majority of
Q4‘08 Y/Y growth: 18%

 64% of total US web searches in Dec-08
Revenues per employee grew in Dec-08
64% of total US web searches steadily since 2001, in a compound rate of almost 20% a
Market share
Productivity
Market share 
 In 2008, the majority of the revenue came from abroad.
year.
In 2008, the majority of the revenue came from abroad.
 Revenues per employee grew steadily ranked as #4 in 2009 Reportrate ofBest
 Top of theper employee grew steadily since 2001, in a compound rate of almost 20% a
Revenues list for 2007 and 2008, and since 2001, in a compound “100 almost 20% a
Productivity
Productivity year.
Companies to Work for in USA” (FORTUNE 500, 2009)
year.
Turn over
 There were both 777,427 job applications in 2008 and no volunteer turn over at
 Top of the list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
 Googlethe list for 2007 and 2008, and ranked as #4 in 2009 Report “100 Best
Top of USA.
Companies to Work for in USA” (FORTUNE 500, 2009)
Companies to Work for in USA” (FORTUNE 500, 2009)
Turn over
Turn over  There were both 777,427 job applications in 2008 and no volunteer of the revenues.
 Google’s 2008 net incomejob applications in 2008 and no volunteer turn over at
There were both 777,427 was about US$4,3B, and represents 19% turn over at
Profitability Google net income in 2007 was US$600M (9% of revenues).
Yahoo! USA.
Google USA.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
 Google’s 2008 net income was about US$4,3B, and represents 19% of the revenues.
Profitability
Profitability Yahoo! net income in 2007 was US$600M (9% of revenues).
Yahoo! net income in 2007 was US$600M (9% of revenues).
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THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

16. Cumulative Total Stockholder Return
Google
Yahoo!
S&P 500
Microsoft
Source: BusinessWeek 16
THE IMPORTACE OF WEB SEARCH TECHOLOGY, INNOVATION AND BUSINESS MODEL IN EXPLAINIG GOOGLE’S SUCCESS

17. Thank you!
Luís Fernando A. Guedes
lguedes@usp.br