Once we have these two tools completed,
we not ask a question about, is this a competitive market?
Is this one of these perfect competitive markets
where economic rents are hard to come by or is this an industry and
a firm that might have a sustained competitive advantage in some way?
This is in essence the heart of what we're trying to achieve in our Foundations of
Strategy Business Course and
will be a subject for many of the modules we talk about within this course.
We'll talk in later modules about capabilities analysis is a way to
analyze internally what are those capabilities a firm has and
do they provide a sustained competitive advantage.
In Google's case, a number of things might come to mind.
We might cite the user interface, the simplicity of it that many people enjoy.
But what you want to think about again are these issues around imitability.
How hard is it for someone to imitate that user interface of Google?
In fact, it’s very easy and many others have if you look at Bing and
Yahoo, and some others,
they will have these simple interfaces that are available to you if you choose.
So that becomes harder to identify as a source of sustained competitive advantage
likely because of it's ease of imitability.
How about technology?
Maybe the underlying search technology is simply superior for
Google maybe, maybe not.
Let me give you a quote here from Microsoft Bing's VP of Development.
Google's a very nice system but compared to my vision, it's pathetic.
All right.
So they're not known for being modest there perhaps.
But an interesting perspective as to whether or
not the technology itself is the distinctive advantage for Google.
How about a brand, right?
It's become this verb these days, you Google something.
Students often like to cite this as the potential source of competitive advantage.
Once again, perhaps but let's think of some things.
One, about only 8% of revenues from Google go to advertising.
So they're not spending a lot on this brand.
I would also point out that over the history of search
we've had lots of different market leaders.
You might of course remember Yahoo, how about Alta Vista, Lycos.
All of these kind of historical examples of searching and
at the time they were popular brands that have fallen by the wayside.
Not suggesting again that that's gonna happen to Google, but
it makes us question whether the Google's brand is really the heart its advantage.
As we've talked before, really it's these higher order combinations of capabilities
that often lead to competitive advantage.
Here's a quote from a student who says, people are what really matter now a days.
They are what define if a company will succeed or not.
I think that's an interesting perspective here,
and gets us to these kind of higher order issues around capabilities and the like,
and around things like the integration of those in terms of
culture that maybe that's the secret sauce for Google at the end of the day.
So last but not least, we ask the question would you invest in Google?
So to be clear, this is not a question of whether Google is likely to be successful,
it is really a question about whether the market currently over values or
under values Google as a company.
They might be successful in the future, but
if they're overvalued in the market they may be a bad investment opportunity.
Now, theoretically the market value of Google should be equal
to the steam of future discounted cash flows that accrue to the company.
Now, it's beyond our scope to go through a discounted cash flow analysis.
However, if you make a model and look at the numbers.
I think one thing that becomes clear very quickly is that the current market
evaluation of Google suggests that they're going to have to
grow their revenues quite substantially over the next let's say five, ten years.
It also suggests, if you consider looking at the current
dominance in search in fact, that they have 70%,
if not more in certain markets in terms of their search capabilities.
If you consider that the market for search itself,
while still growing is beginning to taper off in terms of that growth.
It suggest to me that the only way they can justify their stock price is
that they're gonna have to diversify their earnings into some other line of business.
Now for Google,we can speculate about what that might be.
They're making investments in things like driverless vehicles and the like.
Maybe there's an opportunity for
them to monetize some of these other efforts that they have.
But right now, again they are primarily an advertisement company selling
advertisement through search.
So again doing the analysis, looking at the numbers,
we can start to speculate how they might leverage their current capabilities,
current advantages to then diversify into other businesses.
If we think they are good investment opportunity.
All right.
So in summary, let me end with the following.
I hope you're beginning to see how these tools that we've developed can be applied
in a business context here to start painting a picture
of a company in it's competitive environment.
Competitor analysis and environmental analysis are two fundamental tools here to
help us understand that competitive environment.
We're gonna add more as we go here.
These all work with concern with one another.
They're not viewed as isolated analysis here.
They compliment one another to create a fuller picture
of a comprehensive strategic analysis.
So again, they start to help us answer some important questions about
the strategy and the direction of the firm.
And gives us a template for
working through what are really quite complex questions at the end of the day.