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Why Could Google Die"

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					Why could Google die …
   maybe not now, but tomorrow

               Paris, March 2009
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                                                                                  ..…….
                                          March 2009 • Why could Google die ? •    2
This presentation is an answer to the comments
related to the previous faberNovel study
    In December 2008, faberNovel published a white paper about
    Google’s key success factors :




    http://www.slideshare.net/misteroo/all-about-google-presentation

    Many comments dealt with Google’s weaknesses and the possible
    threats to Google’s market dominance. We are now trying to identify
    these threats and weaknesses.

The title of the presentation refers to Jeff Jarvis’ book
What would Google do? which will be published in France in June 2009 (faberNovel/Télémaque publishing)          ..…….
                                                                        March 2009 • Why could Google die ? •    3
Methodology
•  4 types of threats and weaknesses have been identified:
  Legal threat
  Internal weakness
  Strategic threat
  Other threat
•  For each threat or weakness, probability, forecast and impact have
   been evaluated on scales :
    •  Probability: evaluation of the possibility that a threat or a weakness could impact Google’s
       business
                                Low          Mild          High




    •  Timing: evaluation of the time limit for the threat or a weakness to impact Google’s business

                             Short                          Long
                             term                           term


    •  Impact: evaluation of the negative impact on Google’s revenues and profits

                             Low                            High
                             impact                         impact
                                                                                                       ..…….
                                                          March 2009 • Why could Google die ? •         4
 12 main weaknesses or threats
                            Threats / Weaknesses                  Probability       Timing         Impact
                                                                 Low    >   High Short > Long     Low > High

                Antitrust suits against Google
Legal threats
                Copyright infringement suits
                Inability to hire or retain key people
  Internal
                Inability to scale operational processes
weaknesses
                Top management issues
                Acquisition difficulties

  Strategic     Competition with incumbents
   threats      Disruptive innovations

                Inability to control points of entry
                Interruption or failure of Google’s services

Other threats   Privacy concerns

                Opensource’s ecosystem threats




                                                                                                               ..…….
                                                               March 2009 • Why could Google die ? •            5
     Antitrust suits against Google                                                    Legal threat

               Google is increasingly subject to antitrust suits
              vs                                     /                                   vs

 In 2007, Microsoft called for      In November 2008, Google and             In February 2009, Sourcetool, a B2B
 regulator action to stop Google    Yahoo ended their negotiations,          search engine, filed an antitrust suit
 and DoubleClick merging            abandoning attempts to overcome          against Google, accusing it of upping
                                    the objections of antitrust regulators   its ad rates unfairly




      Google might constantly be subject to antitrust claims for (amongst others) :

   Excluding companies                      Over favoring in-house                    Issuing unclear ad
    from Google results                            services                                  rates


Probability                        Timing                                           Impact

                   High                                         Middle term                          High
                                                                                                                      ..…….
                                                                     March 2009 • Why could Google die ? •             6
       Copyright infringement suits                                               Legal threat

        Google has been subject to copyright infringement claims
                        all over the World (Australia, Austria, France, Israel, Italy,…)


               vs                                    vs                                    vs


  May 2007: Viacom sued Google,        May 2008: a group of Belgian           October 2008: Google agreed to
  accusing YouTube of "massive         newspapers filed a lawsuit against     pay $125 million to settle two
  intentional copyright                Google claiming that Google News       copyright lawsuits by publishers
  infringement" and asking for more    made the papers' articles available    and authors
  than $1 billion in damages           for free. They asked Google for €49
                                       million in damages




              Since most of Google’s services link or host copyrighted material,
                    The risk of monetary damages is substantial
Probability                        Timing                                      Impact

                 High                                      Short term                           Moderate
                                                                                                                 ..…….
                                                                  March 2009 • Why could Google die ? •           7
      Inability to hire or retain key                                                Internal
                   people                                                           weakness
      Google set up processes to attract and motivate employees
       Since its performance depends on the talents and efforts of highly skilled individuals


                                            600

 Examples :                                 400
                                                       Google stock
                                            200
                                                       price [$]
                                                  05    06   07    08
               Cool work                    Transferable stock                        Very selective
              environment                    options program                          hiring process



      In a more mature company, incentives became less efficient:
            Google’s work environment is becoming comparable to big corporations
          At current stock price, 85% of its employees have underwater stock options
   Google’s hiring process is currently viewed as interminable (up to 5 months) and inefficient

Probability                    Timing                                          Impact

               High                                      Middle term                           Moderate
                                                                                                          ..…….
                                                                  March 2009 • Why could Google die ? •    8
      Inability to scale operational                                        Internal
                 processes                                                 weakness
        Operational infrastructure and processes are key to Google
                favoring the growth of the company through innovation and quality


   Google's 80/20 rule allowed to              Organization based on a startup model:
   develop many products :                     •  Project teams are small and autonomous
                                               •  Peer-reviewing: engineers work is subjected to
                                               the scrutiny of other engineers who are experts in
                                               the same field




   Google will face issues adapting its infrastructure to quick growth

   Implementation of heavy     Inability to maintain a corporate        Inability to maintain
   processes which could       culture that fosters creativity and      good quality level for
   slow down innovations       teamwork                                 Google products

Probability                  Timing                                   Impact

              Mild                                 Short term                       Low
                                                                                                    ..…….
                                                         March 2009 • Why could Google die ? •       9
                                                                            Internal
          Top management issues
                                                                           weakness
                    Top management is key to Google’s strategy




 Larry Page, President in          Eric Schmidt, CEO      Sergei Brin, President in
 charge of products                                       charge of technology
  Moreover, the triumvirate’s stocks account for 67% of the voting power of Google
                                      capital stock


     Top management issues could affect Google’s performance
  Internal dissensions        Loss of key management leaders :          Uncertain ability to
  between the members of      accident / lack of interest for a more    transfer or delegate key
  the top management          mature company etc…                       responsibilities


Probability                 Timing                                     Impact
              Low
                                                     Long term                        High
                                                                                                   ..…….
                                                         March 2009 • Why could Google die ? •      10
       Strategic and operational                                            Strategic
   difficulties acquiring companies                                           threat
                 Most of 54 Google’s acquisitions were successful



    In the future, Google could face some serious issues acquiring
                               companies
Strategic issues                  Operating difficulties                Diversion of
•  Forecasted revenues may not    •  Integration of procedures and      management time
fully materialize:                processes                             •  Rather than focusing on
                                  •  Technical integration of the       operating business, top
                                  companies:                            management could focus
•  Google could miss investment                                         on acquisition integration
opportunities:                                                          challenges
                                  Eg : It took 16 months to
                                  relaunch Jotspot after its
                                  acquisition by Google
Probability                  Timing                                    Impact

                 Mild                               Short term                         Moderate
                                                                                                     ..…….
                                                          March 2009 • Why could Google die ? •       11
                                                                        Strategic
      Competition with incumbents
                                                                          threat
    Until now, Google withstands competition on its core business:
                             US search market (Hitwise 2009)
                               Yahoo 18%
                           Microsoft 5%
                                                    Google 72%
                     Other companies 5%


                               But this situation might change

         Microsoft and            Google distributors            New entrants on
         Yahoo could               could break their             Google’s markets
Examples
             merge                   partnership
                                                                      Apple search engine ?

                                                                           More efficient
                                                                            AdSense
                                                                           competitors?
Probability                  Timing                                Potential impact

              Mild                                 Middle term                     High
                                                                                              ..…….
                                                      March 2009 • Why could Google die ? •    12
      Development of a disruptive                                    Strategic
    innovation on Google’s markets                                     threat
    Some of the most successful IT companies have been victims of
                       disruptive innovations:
Historical
leaders




Disruptive        Broadband                Google’s
innovations         access                 PageRank


              Future disruptive innovations could seriously impact
                            Google’s core business:

        Natural language search?       Semantic Web?          Other innovations?



Probability                   Timing                            Impact

                Mild                            Long term                       High
                                                                                           ..…….
                                                   March 2009 • Why could Google die ? •    13
                                                                             Strategic
  Inability to control points of entry
                                                                               threat
   Google already had some difficulties controlling strategic points
                            of entry:
                                        Example : Social networks



              Google and MySpace $900 Million              Except in Brazil and India, Google’s
              deal on search and contextual ads            social network never managed to
              did not reach expected revenues              compete with Facebook



         Google may have difficulties in controlling future points of entry
            Mobile         Video games            Television set-top        Internet of things
                             consoles                   boxes

  Eg :



Probability                    Timing                                   Impact

                Mild                                    Middle term                     Moderate
                                                                                                   ..…….
                                                           March 2009 • Why could Google die ? •    14
 Interruption or failure of Google’s
                                                                        Other threat
              services
        Recently, several Google products experimented serious
                        interruptions or failures:


  March 2009: some             February 2009–March 2009:        March 2009: some users' private
  users had difficulties       Gmail crashed twice across       documents were accidentally
  creating events              the world                        shared with other users


                 These problems may strongly affect Google:



                 Brand damage                                  Loss of business users
     A strong brand is all the more important            Users can very easily move to
     since barriers to entry are relatively low       competitor’s products, and need to fully
              in the Internet market                              trust the service

Probability                    Timing                                Impact

               High                               Short term                         High
                                                                                                  ..…….
                                                        March 2009 • Why could Google die ? •      15
                      Privacy concerns                                             Other threat
                    Everyday, concerns are expressed
     about Google’s practices regarding the use of personal information
 A wide amount of information …                                           …could be lost or used for
                                                                          unintended purposes
 Personal information         Navigation tracking and logs

              Medical Data                   Location
                                                                      •  Governmental control
              Mails &
                                             Searches
                                                                      •  Commercial uses
              conversations
                                                                      •  Others. Eg. exploited by
              Personal         WWW           Web
                                                                      competitors
              documents                      behaviour




      As the amount of stored data is strongly increasing, privacy
                concerns will increase too, favoring:
                   Claims                      Brand damage                       Loss of users
Probability                         Timing                                       Impact

                   High                                      Short term                         High
                                                                                                           ..…….
                                                                   March 2009 • Why could Google die ? •    16
 Opensource’s ecosystem threats                                                  Other threat
       Google is outsourcing its R&D to independent communities

 Google R&D is still important               …but most of it is supported by Opensource actors :

•  2,12 billion $ in 2007                                 •  The Mozilla foundation
•  12 % of Google turnover                                •  Most of Google products integrate
                                                          opensource code : from Android to
•  vs. Microsoft’s R&D investments : 7,5 billion $        Google Chrome




    Google could be forced to internalize these efforts in the future
     Dissensions with the community                            Weaknesses of the community

                        /                                                        X
      •  Google’s exploitation of Opensource                •  Opensource business models may evolve
      efforts                                               •  The long-term existence of these communities
      •  Google’s proprietary strategy : keeping            is not ensured
      most parts of its developments secret

Probability                         Timing                                    Impact

                 Mild                                       Middle term                          Moderate
                                                                                                              ..…….
                                                                March 2009 • Why could Google die ? •          17
What do you think?
                                                     Of what
              Which threat ?
                                                      kind?




Probability       Forecast
                             ?                Impact




Fill this slide and send it to
contact@fabernovel.com to give your opinion!                             ..…….
                                 March 2009 • Why could Google die ? •    18
    Download this presentation at :
http://www.fabernovel.com/en/analyze/
       news/why-could-google-die



                                                              ..…….
                      March 2009 • Why could Google die ? •    19
               Stéphane Distinguin
                   Founder and CEO
stephane.distinguin@fabernovel.com

                        Cyril Vart
        VP Strategy & Development
          cyril.vart@fabernovel.com

                   Pierre Fremaux
                    Project Analyst
    pierre.fremaux@fabernovel.com

                 Matthieu Lecomte
               Junior Project Analyst
  matthieu.lecomte@fabernovel.com

  42, bd de Sébastopol 75003 Paris
            Tél. : +33 1 42 72 20 04
           Fax. : +33 1 42 72 20 03
               www.fabernovel.com                                    ..…….
                             March 2009 • Why could Google die ? •    20