Saudi Electronic University Diversification Strategy Discussion
Corporate diversification strategies raise a wide range of strategic management issues. For this week’s critical thinking assignment, read the case study found in your textbook (Case 19): Google Is Now Alphabet—But What’s the Corporate Strategy?
Remember, a case study is a puzzle to be solved, so before reading and answering the specific case and study questions, develop your proposed solution by following these five steps:
- Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course area which apply to the situation described in the case study.
- Record the facts from the case study which are relevant to the principles and concepts of the course area issues. The case may have extraneous information not relevant to the current course area. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
- Describe in some detail the actions that would address or correct the situation.
- Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
- Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
Case Study Questions:
- What is Google’s corporate strategy? Does Google have a clear vision of what it wants to become?
- Use Porter’s Essentials Test (Chapter 12) to determine if this strategy creates competitive advantage. If so, how? If not, why not?
- Look beyond the conventional sources of synergy and consider complementarities, bargaining power, and rivals. What threats does Google face?
- Does Google need to refocus? How should Google delineate its corporate boundaries and which businesses, or products would you recommend abandoning or divesting, if any?
Your well-written paper should meet the following requirements:
- Be 5 to 7 pages in length, which does not include the title page or required reference page, which are never a part of the content minimum requirements.
- Use academic writing standards and APA 7th style guidelines.
- Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles unless the assignment calls for more.
Case 19 Google Is Now Alphabet—But What’s the Corporate Strategy? On August 10, 2015, Google’s CEO, Larry Page, announced that Google Inc. would become Alphabet Inc., a holding company of which Google (comprising the company’s search and Internet businesses) would be the biggest operating company. Extracts of the announcement are reproduced in Exhibit 1. The organizational structure of Alphabet is shown in Figure 1. The creation of Alphabet was widely viewed as Google’s top management finally conceding to investors’ demands for greater transparency by separating Google’s primary source of profits, its search business, from Google’s other businesses. It was also a confirmation by Google’s founders, Larry Page and Sergey Brin, that their company was no longer simply a search company. The announcement was a reaffirmation of the company’s commitment to developing and commercialization of revolutionary technologies. This quest had already led Google beyond search, beyond the provision of information, and beyond software into mobile devices, home appliances, life sciences, self-driving cars, broadband services, digital eyewear, and a host of other ventures. Soon after its founding, Google had proclaimed “Ten Things We Know To Be True”— a set of business principles that would guide the company’s development. Second on the list was, “It’s best to do one thing really, really well,” to which the response was: “We do search.”1 Google—now Alphabet—was no longer a search company. But what was it? Founders Brin and Page had consistently emphasized that the essence of their company was applying technology to improving the lives of people. Page had declared, “The societal goal is our primary goal,” the challenge being to: “... use all these resources ... and have a much more positive impact on the world?”2 If Alphabet was to be described by technology—then which technologies? From the beginning Google/Alphabet has been about algorithms. Initially, its PageRank algorithm, but increasingly artificial intelligence algorithms that model the functioning of the human brain. By combining machine learning and artificial intelligence, Alphabet is identifying areas where machine intelligence can be superior to human intelligence. The scope of these applications—from autonomous driving to medical diagnosis, to facial recognition, to education—seems limitless. The diversity of Alphabet’s business and technological initiatives also fueled suspicions about the motivations of the founders, Brin and Page. Despite their proclamations to pursue the good of society and to “do no evil,” it seemed to some that Google was locked in battle with Apple, Amazon, Facebook, and Microsoft for the control of cyberspace. This case was prepared by Robert M. Grant. ©2019 Robert M. Grant. 588 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS FIGURE 1 Alphabet Inc.: Organization structure, March 2018 Alphabet Inc. Google Nest* Access Waymo Calico Verily CapitalG GV X “OTHER BETS” * Nest was transferred to become part of Google in February 2018 EXHIBIT 1 Google Announces Plans for New Operating Structure August 10, 2015 As Sergey and I wrote in the original founders’ letter 11 What is Alphabet? Alphabet is mostly a collection of years ago, “Google is not a conventional company. We do companies. The largest of which, of course, is Google. not intend to become one.” ... From the start, we’ve always This newer Google is a bit slimmed down, with the com- strived to do more, and to do important and meaningful panies that are pretty far afield of our main internet prod- things with the resources we have. ucts contained in Alphabet instead. What do we mean We did a lot of things that seemed crazy at the time. by far afield? Good examples are our health efforts: Life Many of those crazy things now have over a billion Sciences (that works on the glucose-sensing contact users, like Google Maps, YouTube, Chrome, and Android. lens), and Calico (focused on longevity). Fundamentally, And we haven’t stopped there. We are still trying to do we believe this allows us more management scale, as we things other people think are crazy but we are super can run things independently that aren’t very related. excited about. Alphabet is about businesses prospering through We’ve long believed that over time companies tend strong leaders and independence. In general, our model to get comfortable doing the same thing, just making is to have a strong CEO who runs each business, with incremental changes. But in the technology industry, Sergey and me in service to them as needed. We will rig- where revolutionary ideas drive the next big growth orously handle capital allocation and work to make sure areas, you need to be a bit uncomfortable to stay relevant. each business is executing well. We’ll also make sure we Our company is operating well today, but we think we can make it cleaner and more accountable. So we are creating a new company, called Alphabet. I am really excited to be running Alphabet as CEO with help from my capable partner, Sergey, as President. have a great CEO for each business ... Larry Page, CEO, Alphabet Source: https://abc.xyz/investor/news/releases/2015/ 0810.html, accessed March 21, 2018. Yet, in terms of its revenue model, Google is an advertising company. In 2017, advertising accounted for 86% of Alphabet’s revenues. Common to almost all Alphabet’s businesses is that they are either vehicles for carrying advertising or they are sources of information that could be utilized to better target advertising. CASE 19 Google Is Now Alphabet—But What’s the Corporate Strategy? 589 The confusion over Alphabet’s corporate strategy was no recent phenomenon. In 2009, the Mercury News reported: Google increasingly feels like a company running in a thousand different directions at once ... The problem is that in expanding into so many different areas, the identity of Google itself has become muddled ... it’s getting harder every day to articulate what Google is. Is it a Web company? A software company? Something else entirely?3 Although comparisons have been made with other diversified giants—the Economist proclaimed Alphabet to be “the new General Electric” and Alphabet’s Chairman Eric Schmidt drew parallels with Berkshire Hathaway—ultimately, it seemed that Alphabet truly was “a different kind of company.”4 Hence, the creation of Alphabet had done little to answer the question that had tormented Google-watchers for years: What was the corporate strategy of the company formerly known as Google? The History of Google, 1996–2018 The Google Search Engine Larry Page and Sergey Brin met as PhD students at Stanford University. Their investigation of the linkage structure of the World Wide Web led them to develop a page- ranking algorithm that used backlink data (references by a Web page to other Web pages) to measure the importance of any Web page. They called their search engine “Google” and in September 1998 incorporated Google Inc. in Menlo Park, California. Google’s “PageRank” algorithm received a patent on September 4, 2001. Search engines met the need of the growing number of people who were turning to the World Wide Web for information and commercial transactions. As the number of websites grew, locating relevant content became essential. Early Web search engines included WebCrawler, Lycos, Excite, Infoseek, Inktomi, Northern Light, and AltaVista. Several of them became portal sites—websites that offered users their first port of entry to the web. Other portals, such as Yahoo! and AOL, soon recognized the need to offer a search facility. The Google search engine attracted a rapidly growing following because of its superior page ranking and simple design. In 2000, Google began selling advertisements—paid Web links associated with search keywords. Its Adwords placed “sponsored links”—brief, plain text ads with a click-on URL—which appeared alongside Web search results for specific keywords. Advertisers bid for keywords; it was these “cost-per-click” bids weighted by an ad’s click-through rate (CTR) that determined the order in which the paid listings would appear. By 2004, Google became the US market leader in Web search; by 2009 its share had reached 65.6%. Google became a public company on August 19, 2004: an IPO of about 7% of Google’s shares raised $1.67 bn., valuing Google at $23 bn. Organizing the World’s Information Google’s expansion beyond Web search was a reflection of its mission “to organize the world’s information and make it universally accessible and useful.” Google’s IPO prospectus elaborated this intent: We serve our users by developing products that enable people to more quickly and easily find, create and organize information.