The giant of Silicon Valley
There are very few companies that have changed the way the world works. Ford Motor Company was one such company in the 20th century. It introduced low cost cars to the American market with stupendous success. At a time when owning a car was a luxury beyond the reach of the average American, Ford’s Model T bridged the gap and started a new era of affordable automobiles.
On the same lines, in the 21st century there have been certain technology based corporates that have altered the way the system works. Google is one such immensely powerful company. It is the world’s most visited website with an ambitious goal to “organize the world’s information”.
Wikipedia describes disruptive technology as:
an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier technology.
Google, in its capacity as one of Silicon Valley’s giants, has been at the forefront of disruptive innovation. Google does not think and function on the same lines as that of an average tech based company. The concept of disruption has been at its core business strategy. Does it sound far-fetched? Not really. Let us analyse.
As of 2013, the net revenue of Google was USD 59.82 billion. Around 90-95 percent of it was derived from Adwords, its golden goose in terms of revenue. In the past, when search engines like Yahoo were charging potential advertisers with hefty amounts to publish ads, Google came up with an innovative idea of Cost Per Clicks. According to this method, an advertiser has to pay only when his ad is clicked by the internet user. This idea sounded the death knell for many upcoming online advertising portals and effectively ended Yahoo’s reign as the most popular site for advertising.
Not only the C-P-C method sounded fresh and economical, it also contributed to the aesthetic look and feel of the search results pages. While Yahoo and other sites looked ridiculously cluttered with flash banners and popping ads, the clean interface of Google was refreshing. Since then, Adwords has grown on to become the primary source of Google’s revenue. This has allowed the company to be financially secure and constantly experiment with path breaking ideas.
The important aspect to note here is Google’s strategy to eliminate competition by introducing a risky yet disruptive business model. Though it is an altogether different issue that the model clicked perfectly, it highlights the way Google thinks.
On August 17, 2005 Google acquired Android, a mobile software company for USD 50 million. Two years later, Google offered to give away the newly developed operating system for free to device manufacturers. A consortium of companies called the Open Handset Alliance was formed and the OEMs (Original Equipment Manufacturers) were exempted from paying any royalties for using the Android software.
Considering the market situation back then, it was shocking and sounded insane. Why would a company invest millions on a product for two years and yet give it away for free? During that period, Symbian and windows mobile operating systems were the dominant market players and were very well established. Competitors like Nokia and Microsoft shrugged off the impact of Android’s introduction and its threat was considered as null. Yet, Android is the most widely used operating system in the world today. For every iOS device being activated, in comparison there are three Android devices in the world. It has also pushed the once popular Symbian operating system into complete oblivion. As of 2013, Android owns 78.9 percent of the market share, a huge lead over Apple’s iOS, which is a distant second at 15.5 percent.
The important question to ask is : why did a search engine giant invest so heavily in delivering a mobile operating system? For starters, it wasn’t because they wanted to diversify their sources of income. It practically gains nothing from Android when compared to its other income sources.
Here comes the interesting part: Google realized that the world was swiftly transitioning towards mobile based searches. The percentage of users using mobile devices for searches showed an upward trend and this was a worrying factor for Google. It wasn’t imperative that a mobile user would always access the Google website for a web search. Google would lose huge amounts of search related data that is necessary to generate user specific ads. It needed a native application on the phone to facilitate quick and hassle free web searches and also accommodate its growing number of services such as Google Maps.
Thus, the entry of Android into the mobile hemisphere was significant. With an open source API and a large base of developers contributing to its app store, Google could lure users into buying android based devices and yet subtly enforce their services upon them.
Protect the golden goose
The final equation in every move Google makes ultimately strips down to one single entity: the web search. All said and done, Google is an internet search engine company and majority of its revenue comes from search based advertising. With the wide usage of Android devices, at Google’s disposal is a huge database of user data that can be used to generate user specific ads and deliver better results to the advertisers. With location based and personal data about each user being recorded at Google’s servers, it is literally an information goldmine. The more accurate the user specific ads, better the advertising performance and ultimately better revenue.
It is fascinating to know the lengths to which Google can go to safeguard its principal entity : the web search. In order to maintain dominance in the area of web searches, it has even launched the flagship Nexus brand of smartphones and tablets. An attempt to demonstrate the power of Android and reinforce the faith in potential customers.
Not just Android, potentially every move Google makes is to safeguard its dominance in the area of web searches and advertising. Be it Google Maps, Google Docs, Google News or the other multitude of services that are offered for ‘free’, they all add the enticement factor and keep the users hooked onto their ecosystem. This is market disruption to a new level. A stroke of genius driven by astute business thinking and strategy.
But then again, Google was never your average tech company and it never will be. To quote an article headline:
Disruptive innovation is not a tactic. It is a mindset.
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