Google riddle
Free translation of an article by Nicholas G. Carr.
The most remarkable business story of this decade is Google's rise from the dotcom dust. The company did not even exist 10 years ago. She united two graduates of Stanford University Larry Page and Larry Page and Sergey Brin on September 7, 1998. But today, her ruthless forces are as afraid as they admire her. The company's rapid growth caused dizziness from a jump of 500 million in 2002 to 10.5 billion in 2006. And despite the aggressive program of acquiring other companies and multi-billion investments in building data centers, Google remains super-profitable, bringing net income of 2 billion to 7.5 billion in sales in the first half of 2007. Its stock price has increased fivefold since their first public offering in August 2004.
Whenever a company becomes successful in a short time, it becomes an object of imitation for corporate executives and even for the general public. Moreover, it is beginning to be considered as a new model for business success. Journalists and scholars study its history and practice, learning the main lessons for use by other firms. And Google is no exception. In the past two years, the company has been working as an idea factory (“idea factory”), as written in Business Week. Professors of business schools publish research on the organization of the company and the management of product development.
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Executives have at least two reasons to think twice before jumping onto a truck that says Google. First of all, Google is still a young company and it should be tested with troubles. We cannot even be sure whether his approach to management, especially the approach to innovations, the reason for his success or the success of his product is a significant difference. Secondly, we don’t know how well the Google example can be applied to other companies. Google is really a different company, but is it really so different to be an exception? Can it really be considered an example to follow?
It’s probably too early to answer these questions completely. But if you take a look at Google’s business model and its innovative program, we can open important “keys” and gain an understanding of how our ideas about business innovation are shaped.
“Some say that Google is God,” said Sergey Brin once. "Others say Google is Satan." Despite the great media attention, the company is still a mystery. People can not even really understand what industry it belongs to. Many companies, including advertising agencies, software developers, telephone companies, newspapers, television networks, film studios, credit card networks and Internet companies of all types, see Google as a real or future competitor. Even financial advisors, doctors and librarians follow the company with care.
The apparent breadth of Google’s influence and its activities can easily be interpreted as evidence that it really is a new kind of business, one that goes beyond the usual understanding and revises all traditional categories. When you review Google’s business model, you will notice that it’s not as mysterious as it seems at first glance. How does Google make money? He mediates and places advertisements in electronic media and on the websites of partners. A large percentage of sales are paid by advertisers to use their network to post their advertising messages on the Internet.
Diversified focus of Google can not reflect its core business. Most likely this is due to the multiple additions to the core business. Add-ons - any products and services that are used in addition to the main product. For example, hot dogs and mustard or buildings and warehouses. For Google, everything that is found on the Internet is an addition to its core business. The more companies produce online and the more ads are viewed, the more money Google will receive. In addition, Google collects a lot of data about needs, preferences and behavior, which it uses for the most appropriate ads. Thus its competitiveness increases and profits increase. As more and more products and services spread digitally through networks (entertainment, programs, financial transactions, etc.), the more Google will expand its reach to various industrial sectors.
Since sales of complementary products are in tandem, companies have a great strategic interest in reducing the cost and increasing the additions to the main product. If hot dogs were to be distributed for free, then mustard sales would skyrocket. It is this natural engine used to reduce add-ons that is the explanation for Google’s strategy. Almost everything the company does, including building large data centers, purchasing optical fibers, opening free Wi-Fi, combating copyright restrictions, supporting open source software and Web services, aims to reduce the cost and increase the possibilities of using the Internet. Google wants all the information to be free and that is why it inspires concern to many different companies.
Since the marginal cost of producing and distributing new copies of a conventional digital product tends to zero, Google not only wants to give out information products, but also has economic opportunities to do so. Two possibilities (extensive breadth of additions and the ability to set a zero price) make the company different from other firms. Google has much lower risks in product development than conventional manufacturing companies. He usually launches his half-ready services as “beta”, because he understands that even if he is unable to win a large market share, he will still be able to attract resources in the production of advertising and obtain data on customer behavior. For most companies, launching a new product is very expensive. For Google in general, no. Failure is cheap.
All this makes Google a potential dangerous model for other companies. Your company can compete, either directly or indirectly, with Google, but if you make money selling digital advertisements, you don’t have to take much of this example, at a strategic level. Google's business economy may differ. Following the leader, you can go broke.
But how about learning at a more tactical level? Can other companies learn some useful lessons from how Google organizes the business innovation process? The answer is “yes and no.”
Much of Google’s success and all of its profits can be reduced to three innovations:
First, a brilliant understanding of the organization of information,
Secondly, creativity in action,
Third, a major achievement in the development of computer systems.
The company was created in early 1996 by Page and Brin, when they realized that modern search engines are badly flawed. In ranking the results for a keyword, traditional search engines when issuing were based on the number of repetitions of a word on a page. Google executives imagined that they would get a much better result if they looked at the quantity and quality of other pages related to this one. They understood the connections, and got a clearer picture of the importance and value of the sites.
The excellent search results provided by Google quickly attracted the attention of surfers surfing the Internet. And in a short time, Google was able to become the dominant poster system. Free search results are a big part of the business model. And this leads us to the second important innovation: the creation of an exchange for the sale of advertisements related to search results. Google is not the author of the idea of ​​advertising in search results. And so another search engine, GoTo, hit it hard. But Google improved the mechanisms. Taking into account that GoTo ranked ads according to the number of advertisers, Google added a second criterion - the probability that people click on an ad. This innovation has made Google more profitable, significantly increasing the clickable possibilities of ads. And when this is all combined with excellent search results, Google's ad exchange becomes a gold mine.
The third big innovation of Google, perhaps one of the most important for the continued success of the company, is the design of computer systems for parallel data processing. Placing many data centers around the world and connecting hundreds of thousands of computers, the system is able to read the numbers and process the search at unprecedented speeds. Because people need quick answers from online software, Google’s search engine has a big advantage over Yahoo! and Microsoft. In the future, these companies will struggle both in the capacity and efficiency of their systems, and in the attractiveness of their services.
Should innovation-minded managers look to fast-growing Internet companies as new business models or exceptions to the rule?
The most remarkable business story of this decade is Google's rise from the dotcom dust. The company did not even exist 10 years ago. She united two graduates of Stanford University Larry Page and Larry Page and Sergey Brin on September 7, 1998. But today, her ruthless forces are as afraid as they admire her. The company's rapid growth caused dizziness from a jump of 500 million in 2002 to 10.5 billion in 2006. And despite the aggressive program of acquiring other companies and multi-billion investments in building data centers, Google remains super-profitable, bringing net income of 2 billion to 7.5 billion in sales in the first half of 2007. Its stock price has increased fivefold since their first public offering in August 2004.
Whenever a company becomes successful in a short time, it becomes an object of imitation for corporate executives and even for the general public. Moreover, it is beginning to be considered as a new model for business success. Journalists and scholars study its history and practice, learning the main lessons for use by other firms. And Google is no exception. In the past two years, the company has been working as an idea factory (“idea factory”), as written in Business Week. Professors of business schools publish research on the organization of the company and the management of product development.
')
Executives have at least two reasons to think twice before jumping onto a truck that says Google. First of all, Google is still a young company and it should be tested with troubles. We cannot even be sure whether his approach to management, especially the approach to innovations, the reason for his success or the success of his product is a significant difference. Secondly, we don’t know how well the Google example can be applied to other companies. Google is really a different company, but is it really so different to be an exception? Can it really be considered an example to follow?
It’s probably too early to answer these questions completely. But if you take a look at Google’s business model and its innovative program, we can open important “keys” and gain an understanding of how our ideas about business innovation are shaped.
Additional advantage
“Some say that Google is God,” said Sergey Brin once. "Others say Google is Satan." Despite the great media attention, the company is still a mystery. People can not even really understand what industry it belongs to. Many companies, including advertising agencies, software developers, telephone companies, newspapers, television networks, film studios, credit card networks and Internet companies of all types, see Google as a real or future competitor. Even financial advisors, doctors and librarians follow the company with care.
The apparent breadth of Google’s influence and its activities can easily be interpreted as evidence that it really is a new kind of business, one that goes beyond the usual understanding and revises all traditional categories. When you review Google’s business model, you will notice that it’s not as mysterious as it seems at first glance. How does Google make money? He mediates and places advertisements in electronic media and on the websites of partners. A large percentage of sales are paid by advertisers to use their network to post their advertising messages on the Internet.
Diversified focus of Google can not reflect its core business. Most likely this is due to the multiple additions to the core business. Add-ons - any products and services that are used in addition to the main product. For example, hot dogs and mustard or buildings and warehouses. For Google, everything that is found on the Internet is an addition to its core business. The more companies produce online and the more ads are viewed, the more money Google will receive. In addition, Google collects a lot of data about needs, preferences and behavior, which it uses for the most appropriate ads. Thus its competitiveness increases and profits increase. As more and more products and services spread digitally through networks (entertainment, programs, financial transactions, etc.), the more Google will expand its reach to various industrial sectors.
Since sales of complementary products are in tandem, companies have a great strategic interest in reducing the cost and increasing the additions to the main product. If hot dogs were to be distributed for free, then mustard sales would skyrocket. It is this natural engine used to reduce add-ons that is the explanation for Google’s strategy. Almost everything the company does, including building large data centers, purchasing optical fibers, opening free Wi-Fi, combating copyright restrictions, supporting open source software and Web services, aims to reduce the cost and increase the possibilities of using the Internet. Google wants all the information to be free and that is why it inspires concern to many different companies.
Since the marginal cost of producing and distributing new copies of a conventional digital product tends to zero, Google not only wants to give out information products, but also has economic opportunities to do so. Two possibilities (extensive breadth of additions and the ability to set a zero price) make the company different from other firms. Google has much lower risks in product development than conventional manufacturing companies. He usually launches his half-ready services as “beta”, because he understands that even if he is unable to win a large market share, he will still be able to attract resources in the production of advertising and obtain data on customer behavior. For most companies, launching a new product is very expensive. For Google in general, no. Failure is cheap.
All this makes Google a potential dangerous model for other companies. Your company can compete, either directly or indirectly, with Google, but if you make money selling digital advertisements, you don’t have to take much of this example, at a strategic level. Google's business economy may differ. Following the leader, you can go broke.
Lessons from Googleplex
But how about learning at a more tactical level? Can other companies learn some useful lessons from how Google organizes the business innovation process? The answer is “yes and no.”
Much of Google’s success and all of its profits can be reduced to three innovations:
First, a brilliant understanding of the organization of information,
Secondly, creativity in action,
Third, a major achievement in the development of computer systems.
The company was created in early 1996 by Page and Brin, when they realized that modern search engines are badly flawed. In ranking the results for a keyword, traditional search engines when issuing were based on the number of repetitions of a word on a page. Google executives imagined that they would get a much better result if they looked at the quantity and quality of other pages related to this one. They understood the connections, and got a clearer picture of the importance and value of the sites.
The excellent search results provided by Google quickly attracted the attention of surfers surfing the Internet. And in a short time, Google was able to become the dominant poster system. Free search results are a big part of the business model. And this leads us to the second important innovation: the creation of an exchange for the sale of advertisements related to search results. Google is not the author of the idea of ​​advertising in search results. And so another search engine, GoTo, hit it hard. But Google improved the mechanisms. Taking into account that GoTo ranked ads according to the number of advertisers, Google added a second criterion - the probability that people click on an ad. This innovation has made Google more profitable, significantly increasing the clickable possibilities of ads. And when this is all combined with excellent search results, Google's ad exchange becomes a gold mine.
The third big innovation of Google, perhaps one of the most important for the continued success of the company, is the design of computer systems for parallel data processing. Placing many data centers around the world and connecting hundreds of thousands of computers, the system is able to read the numbers and process the search at unprecedented speeds. Because people need quick answers from online software, Google’s search engine has a big advantage over Yahoo! and Microsoft. In the future, these companies will struggle both in the capacity and efficiency of their systems, and in the attractiveness of their services.
Source: https://habr.com/ru/post/19477/
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