RESEARCH WORK

ON

SUBMITTED BY:

MANOJ JAIN (08-069)

(08
SHYAM NATH G S (08-118)
(08
 CONTENTS
TOPIC PAGE NO.

Ø GOOGLE’S OVERVIEW ……………………………………… 03

Ø MISSION ……………………………………… 05

Ø GOOGLE MANAGEMENT ……………………………………… 05

Ø GOOGLE HISTORY ……………………………………... 06

Ø GROWTH ……………………………………... . 09

Ø PRODUCT PORTFOLIO …………………………………….. . 09

Ø GOOGLE’S BUSINESS MODEL…………………………………… 10

Ø THE GOOGLE CULTURE ……………………………………… 11

Ø IPR-INTELLECTUAL PROPERTY RIGHTS ……………………. . 13

Ø GOOGLE’S COMPETITORS ……………………………………… 13

Ø FINANCIAL TABLES ……………………………………… 14

Ø MARKET SHARE ……………………………………… 17

Ø GOOGLE MARKET CAPITALIZATION………………………… 17

Ø GOOGLE MARKETING STRATEGY …………………………… . 18

Ø MARKET SEGMENTATION ……………………………………… 19

Ø PRICING ……………………………………… 19

Ø SWOT ANALYSIS …………………………………….... 20

Ø WTO POLICIES AND GOOGLE…………………………………… 27

Ø R&D ……………………………………… 29

Ø COST MANAGEMENT STRATEGIES..………………………….. . 30

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Ø GOOGLE AND RECESSION ……………………………………… 31

Google is one of the leading internet technology and advertising companies in the world. The
company specializes in internet search engines and related advertising services. It maintains a
large index of web sites and other online content, which are freely available through its search
engine. The company generates revenue primarily by delivering relevant, online advertising. It
also offers advertising in news papers, radio and television. The company primarily operates in
the US, the UK and other countries. It is headquartered in Mountain View, California and
employs about 20,222 people. The company recorded revenues of $21,795.6 million during the
financial year ended December 2008 (FY2008), an increase of 31.3% over 2007. The operating
profit of the company was $6632 million ($6632 million) in FY2008, an increase of 30.4% over
2007. Its net profit was $4226.9 million ($4226.9 million) in FY2008, an increase of 0.6% over
2007.

Google has earned a strong market position and technology expertise enabling it to launch a
number of new products such as Gmail and Google Earth. The company has a proprietary
technology and strong technological infrastructure providing competitive advantage. Google uses
self-service delivery model (through AdWords and AdSense) enabling it to establish a customer
relationship with over 160,000 advertisers worldwide.

GOOGLE’S OVERVIEW

Our name and Founders:

Founders Larry Page and Sergey Brin named the search engine they built "Google," a play on the
word "googol," the mathematical term for a 1 followed by 100 zeros. The name reflects the
immense volume of information that exists, and the scope of Google's mission: to organize the
world's information and make it universally accessible and useful.

v LARRY PAGE (Co-Founder & President, Products)

Ø Larry Page was Google's founding CEO and grew the company to more than 200
employees and profitability before moving into his role as president of products in April
2001. He continues to share responsibility for Google's day-to-day operations with Eric
Schmidt and Sergey Brin.
Ø The son of Michigan State University computer science professor Dr. Carl Victor Page,
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Larry's love of computers began at age six. While following in his father's footsteps in
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academics, he became an honors graduate from the University of Michigan, where he

 earned a bachelor's
elor's degree in engineering, with a concentration on computer engineering.
During his time in Ann Arbor, Larry built an inkjet printer out of Lego™ bricks.
Ø While in the Ph.D. program in computer science at Stanford University, Larry met Sergey
Brin, and together
ogether they developed and ran Google, which began operating in 1998. Larry
went on leave from Stanford after earning his master's degree.
Ø In 2002, Larry was named a World Economic Forum Global Leader for Tomorrow. He is
a member of the National Advisory C Committee
ommittee (NAC) of the University of Michigan
College of Engineering, and together with co co-founder
founder Sergey Brin, Larry was honored
with the Marconi Prize in 2004. He is a trustee on the board of the X PRIZE, and was
elected to the National Academy of Enginee
Engineering in 2004.

v SERGEY BRIN (Co-Founder & President, Technology)

Ø Sergey Brin, a native of Moscow, received a bachelor of science degree with honors in
mathematics and computer science from the University of Maryland at College Park. He
is currently on leave
ave from the Ph.D. program in computer science at Stanford University,
where he received his master's degree. Sergey is a recipient of a National Science
Foundation Graduate Fellowship as well as an honorary MBA from Instituto de Empresa.
It was at Stanfordd where he met Larry Page and worked on the project that became
Google. Together they founded Google Inc. in 1998, and Sergey continues to share
responsibility for day-to-day
day operations with Larry Page and Eric Schmidt.
Ø Sergey's research interests include search engines, information extraction from
unstructured sources, and data mining of large text collections and scientific data. He has
published more than a dozen academic papers, including Extracting Patterns and
Relations from the World Wide Web; DynamiDynamicc Data Mining: A New Architecture for
Dimensionality,, which he published with Larry Page; Scalable
Data with High Dimensionality
Techniques for Mining Casual Structures; Dynamic Itemset Counting and Implication
Rules for Market Basket DataData; and Beyond Market Baskets: Generalizing
eralizing Association
Rules to Correlations.
Ø Sergey has been a featured speaker at several international academic, business and
technology forums, including the World Economic Forum and the Technology,
Entertainment and Design Conference. He has shared his views on the technology
industry and the future of search on the Charlie Rose Show,, CNBC, and CNNfn. In 2004,
he and Larry Page were named "Persons of the Week" by ABC World News Tonight Tonight.
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MISSION
Google's mission is to organize the world's information and make it universally
accessible and useful.

Quick Facts

o Founded:1998
o Founders:Larry Page and Sergey Brin
o Incorporation: September 4, 1998
o Initial public offering (NASDAQ): August 19, 2004
o Headquarters: 1600 Amphitheatre Parkway, Mountain View, CA 94043
o Offices: Locations of our offices around the world.
o Management: Our executives and board of directors.
o Investor Relations: Financial and corporate governance information.

PROFILE OF GOOGLE

Google is a very popular search engine. It is an American corporation, which earns revenue from
email, online mapping, advertising, video sharing, selling advertising free versions of same
technologies, social network and offer productivity. The headquarter of Google is located in
Mountain view, California. The headquarter of Google is also known as Googleplex. The
employees of this company works for the full time. It has 19,768. There are thousands of servers
worldwide. The mission of this company is to organize the world’s Information and make it
universally useful and accessible.

ORIGIN

Larry Page and Sergey Brin were the two students met each other in the Stanford University as a
student. Both of them were having the same subject Computer Science. Both of them had the
different viewpoints but with the same interest. They started working together in 1996 on search
engine. Back Rub was the search engine which servers the Stanford University. Larry and Sergey
wanted to change their name. They come up with the new name Google. This word came from
the word “Googol” . Googol is the mathematical term which means 1 followed by the 100 zeros.
They decided “googol” that it reflects the company’s mission to organize the immense amount
available on net.

GOOGLE MANAGEMENT
Co-founders Larry Page, president of Products, and Sergey Brin, president of Technology,
brought Google to life in September 1998. Since then, the company has grown to more than
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10,000 employees worldwide, with a management team that represents some of the most
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experienced technology professionals in the industry. Eric Schmidt joined Google as chairman
and chief executive officer in 2001.

Board of Directors

• Eric Schmidt, Google Inc.

• Sergey Brin, Google Inc.
• Larry Page, Google Inc.
• John Doerr, Kleiner Perkins Caufield & Byers
• Ram Shriram, Sherpalo
• John Hennessy, Stanford University
• Paul Otellini, Intel
• Shirley M. Tilghman, Princeton University (google chrome logo)
• Ann Mather

GOOGLE HISTORY
v 1995-1997
In 1995, the founder of this company Larry page and Sergey Brin met at the
Stanford. That time Larry was 22 and Sergey was 21. During the first meeting they
disagree about most everything, according to some accounts. In 1996, both were in
Stanford computer science grad students; they started collaborating on a search engine,
which is as Back Rub. That time Back Rub operates on servers of Stanford for more than
a year. In 1997, they wanted to give the new name to BackRub search engine. They come
up with Google. This word came from Googol, which is a mathematical term which
means 1 followed by 100 zeros. This reflects that their mission is to organize infinite
amount of information on the web.

v 1998
In August 1998, Sun co- founder Andy Bechtolsheim wrote a check for $100,000
to a entity called Google. Inc that does not exist yet. In September 1998, In Sunasan
Wajcicki’s garage Google sets up workspace at 232 Santa margarita, Menlo Park. In Sep
4, they opened a bank account in the newly established company’s name and deposit
Andy Bechtolsheim’s check. And the name of company is Google. They hired the first
employee named as Craig Silverstein. He was the fellow of computer science grad
student of Stanford. In Dec 1998, Google recognized as the search engine and IT came in
the top 100 Web sites for 1998.

v 1999
In Feb 1999, only with the 8 employees they developed their garage office and move
to the new place at 165 University Avenue in Palo Alto. Their First Company “Yoshka”
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comes for the work with Urs Hoelzle, who was the vice president of operations. In May,
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the first non- engineering hired named Omid Kordestani who joins to run sales. In June,
 The release quotes Moritz described “Googlers” which means “People who use Google”.
In Aug 1999, they moved to the Mountain View, which is north of the older towns of
Silicon Valley and a few miles south to Standard University. In November, Google’s
First chef. Charlie Ayers.

v 2000
On 1st April 2000, they announced the MentalPlex. This shows that Google can read
your mind as you visualize the search results you want. In May, Google came up with
first 10 languages French, German, Italian, Swedish, Finnish, Spanish, Portuguese,
Dutch, Norwegian and Danish. In May, Google also won Webby Awards. In June 2000,
Google did Partnership with Yahoo! To become their default search provider. In the
same month they announced the first billion-URL index and after that Google becomes
the world’s largest search engine. In September they come up with the total number of
supported languages to 15 like Chinese, Japanese and Korean etc. In October with 350
customers Google came up with the “Google Adwords” which is the self service ad
program promises online activation with credit card, keyword targeting and performance
feedback. In Dec, they released Google Toolbar, where we can search without visiting the
Google homepage.

v 2001
In 2001, they announced Eric Schmidt as Chairman of the board of directors. In 2001,
Google.com was available in 26 languages. In July 2001, they launched Image search,
where we can search images, offering access to 25 million images. In August, They
opened First international office in Tokyo. Eric Schmidt becomes the CEO. Larry and
Sergey are named presidents of products and technology, respectively. In Oct, Google did
partnership with Universo Online which makes Google the major search service for
millions of Latin Americans. In Dec, Google index size Grows to 3 Billion.

v 2002
Google launched News with 4000 news sources. They opened first Australian office
in Sydney. They did partnership with AOL. They released Google labs. In 2002, They
released Google Product Search which is also known as Froogle where User can search
for stuff to buy with Froogle.

v 2003
In Jan 2003, American Dialect Society members vote for “Google’ for 2002 this was
the word of the year. In the same year 2003 they acquired Pyra lab. They released
GoogleGrant and Google Print in the same year 2003. In Mountain View, California
Google leased building for complex at 1600 Amphitheatre Parkway from Silicon
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Graphics.
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v 2004
Google launches Orkut, sphere of social networking. In Feb 2004, Larry Page
inducted into the National Academy of Engineering. In the same year they move to their
New “Googleplex” at 1600 Amphitheatre Parkway in Mountain View. In March 2004
they introduced Google Local, offering relevant neighborhood business listing maps and
directions. In April 2004, they announced plan to open the Googlunaplex. In October,
they launched Google SMS. They acquired Keyhole, which is a digital mapping
company. This company later becomes Google Earth.

v 2005
In Feb, Google map goes live. They acquired Urchin, which is a web analytics
company. In April Google Maps now works as satellite views and directions. They
released Bloggers mobile. In the same year they designed Personalized Homepage which
is known as iGoogle. In the same year they launched Google Talk. In 2005 Google
announced a partnership with NASA Research Center to build up 93,000 square meters.

v 2006
Google announced the acquisition of dMarc, a digital radio advertising company.
They introduced Picasa in 25 more languages. They released Chat in Gmail, they
announced the acquisition of Writely, which is a web based word processing application,
they launched google calendar, they released maps and Google trend in the same year.
They released Oxford English Dictionary also. They launched free Citywide Wi-Fi in
Mountain View. They released Google Book Search begin offering free PDF downloads.

v 2007
Google announced partnership with the China mobile. The same year they Google
did agreement to acquire “Double Click”. On July 2007, Google Purchased Grand
Central for $50 million. On 9 July 2007, Google acquired messaging security and
compliance company “Postini”. In the same year On August 5, Google announced the
purchase of video software maker on 2 technologies for $106.5 million. It was the first
acquisition of the public company. The Royal Channel on You Tube launched by the
Queen of England launches. She was the First monarch to establish a video presence this
way.

v 2008
In 2008, Google announced the hosting an archive of Life magazine’s photographs, as
a part of joint effort. In July 2008, Google ordered to give YouTube user data log to
Viacom to support its case in a billion- dollar copyright lawsuit against Google. In the
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same year they finalized the deal for Doubleclick. They launched new Version of Google
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 earth. We released the first draft of Clean Energy 2030; The plan could generate billions
in savings as well as millions of “green jobs”. Google introduced iPhone and iPod touch,
complete with photos, geo-located Wikipedia articles. Google reached an agreement with
Yahoo! Google announced its “ project 10^100” which accepted ideas how to help the
community.

v 2009
On the 40th anniversary of the Moon landing Google launched Moon in Google Earth.
They added a search options panel to Google Images, where we can find the types of
Images we need. They announced that they are developing Google Chrome OS, an open
source, lightweight operation system initially targeted at netbooks. They also released the
Adsense of Mobile Applications. They also introduced the new page to customize the
iGoogle page.

GROWTH
In the stage of beta also Google.com was answering more than 10,000 search queries
daily. In the 1998 Google was only in the articles of USA Today but in the same year It was in
the list of top 100 websites and search engine, this was according to the PC Magazine. 1999 it
moved into new office which was the home of so many Silicon Valley start up name of the place
is 165, University Avenue at around Palo Alto. Then soon it started getting around 500,000
queries per day. There were the two leading competitors venture two rival companies together
underlying their confidence in Google, these were Sequoia Capital and Kleiner Perkins Caufield
& Byers. After getting Funds Company’s headquarter shifted to Mountain View, California
called Googleplex. Google also appeared in Time Magazine’s to Ten Best Cybertech list in
September 1999. In 2000, Google came out with the more than 10 different languages. It became
the world’s largest search engine. At the end of 2000 Google was handling more than 10000
queries. In 2001 more than 250 million images we can type. In 2003, Google new toolbar was
released followed Deskbar. This was located in the Taskbar. Later Google was added to S& P
500 index in 2006. Later it acquires the YouTube, a web based platform for watching and
sharing videos, for the sum of $ 1.65 billion in stocks. So we can see the Growth of Google.

PRODUCT PORTFOLIO
v Search
Ø Alerts Get email updates on the topics of your choice

Ø Blog Search Find blogs on your favorite topics

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Ø Google Chrome A browser built for speed, stability and security

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 Ø Directory Search the web, organized by topic or category

Ø Images Search for images on the web

Ø News Search thousands of news stories

Ø Scholar Search scholarly papers

Ø Web Search Search billions of web pages

v Explore and innovate

Ø Code Developer tools, APIs and resources

v Communicate, show & share

Ø Docs Create and share your online documents, presentations, and

Ø Groups Create mailing lists and discussion groups

Ø Translate View web pages in other languages

v Go mobile
Ø Mobile Get Google products on your mobile phone

GOOGLE’S BUSINESS MODEL

Google is a very popular search engine company. They are offering to the consumers like Picasa
Blogger, Keyhole, Gmail, and other features. Google restructuring its business model. There are
the Elements of business model. Like Marketing/ value chain positioning, Target customer,
offering bundle, profit mechanism, basis of competition, principles of operation, and value
proposition.

Market/ Value chain positioning: Google is expanding their business. Google came up with the
new products like Google earth, Google Adsense, Google beta, Google talk etc. Google is the
only company where person can personally like to call Google an advertising company because
they don’t want any copy writers they allows any business to start advertising online.

Target Customer: There are so many large companies in Google as advertiser, publisher, and
partners. The Growth reflects the numbers of partner and still they are recruiting and improving
their monetization of programs.

Offering Bundles: Google has already monetized everything example Google news, its bundle
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is already full still it is coming up with the new innovative ideas.

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Principle of operation: They always hire the best and the brightest employee and give them
freedom to their best, and keep it all simple.

Basis of competition: Simple and powerful.

Profit mechanism: drive ebusiness.

THE GOOGLE CULTURE

Though the Google opened in 1998, but feel they still maintain like a small company. Everyone
eats in the office café at the time of lunch, enjoying conservations with Googlers from different
teams. They want that everyone shares ideas and opinions this is the commitment to innovation
they think. They think that everyone is equal important part of their success. Everyone can
directly ask any question to Larry or Sergey in weekly meetings if they have any doubt. They
give more preference to ability oover
ver experience. They have offices all around the world and so
many languages spoken by Googlers. They keep some following principles in mind when they
treat with user or client. like Integrity, Usefulness, Privacy and Freedom of Expression,
Responsiveness,, Task action, Respect each other, Equal opportunity employment, Drugs and
Alcohol , safe workplace, dog policy, Avoid conflicts of interest, Personal investments, outside
board membership, Business opportunities, Friends and Relatives; co co-worker
worker relationships,
relations Gifts,
Entertainment and Payments, Reporting, physical security network etc. Googlers are guided by
both the letter and the spirit of code. Any time they can ask any question to their manager. The
atmosphere of Google is very informal and relaxed. G Google
oogle always comes up with an April fool
Joke, and in 2006, they came up with the Google Romance, hypothetical online dating service.
Overall the culture of the Google informal and relaxed.

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Life of a Google Query

• The life span of a Google query normally lasts less than half a second, yet involves a
number of different steps that must be completed before results can be delivered to a
person seeking information.

1. The web server sends the query to the index

3. The search results are servers. The content inside the index servers is
returned to the user in a similar to the index in the back of a book - it
fraction of a second. tells which pages contain the words that match
the query.

2.The query travels to the doc

servers, which actually retrieve the
stored documents. Snippets are
generated to describe each search
result.

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IPR-Intellectual Property Rights

Google's Intellectual Property Rights.You acknowledge that Google owns all right, title and
interest in and to the Service, including all intellectual property rights (the "Google Rights").
Google Rights are protected by U.S. and international intellectual property laws. Accordingly,
you agree that you will not copy, reproduce, alter, modify, or create derivative works from the
Service. You also agree that you will not use any robot, spider, other automated device, or
manual process to monitor or copy any content from the Service. As described immediately
below, Google Rights do not include third-party content used as part of the Service, including the
content of communications appearing on the Service.

Google claims no ownership or control over any Content submitted, posted or displayed by you
on or through Google services. You or a third party licensor, as appropriate, retain all patent,
trademark and copyright to any Content you submit, post or display on or through Google
services and you are responsible for protecting those rights, as appropriate. By submitting,
posting or displaying Content on or through Google services which are intended to be available
to the members of the public, you grant Google a worldwide, non-exclusive, royalty-free license
to reproduce, publish and distribute such Content on Google services for the purpose of
displaying and distributing Google services. Google furthermore reserves the right to refuse to
accept, post, display or transmit any Content in its sole discretion.

GOOGLE’S COMPETITORS
• News Corporation
• Yahoo
• Viacom
• WPP
• PayPal Comcast
• MSN

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 FINANCIAL TABLES

Full Year 2009

(unaudited)
Revenues 2005 2006 2007 2008 Q1 Q2 Q3
Revenues 6,138,560 10,604,917 16,593,986 21,795,550 5,508,990 5,522,897 5,944,851
Y/Y Growth 92% 73% 56% 31% 6% 3% 7%
Rate
Q/Q Growth NA NA NA NA -3% 0% 8%
Rate
Google web 3,377,061 6,332,797 10,624,705 14,413,826 3,692,823 3,652,628 3,955,731
sites
Y/Y Growth 113% 88% 68% 36% 9% 3% 8%
Rate
Q/Q Growth NA NA NA NA -3% -1% 8%
Rate
Google 2,687,942 4,159,831 5,787,938 6,714,688 1,638,042 1,683,500 1,800,890
Network web
sites
Y/Y Growth 73% 55% 39% 16% -3% 2% 7%
Rate
Q/Q Growth NA NA NA NA -3% 3% 7%
Rate
Total Advertising 6,065,003 10,492,628 16,412,643 21,128,514 5,330,865 5,336,128 5,756,621
Revenues
Y/Y Growth 93% 73% 56% 29% 5% 3% 8%
Rate
Q/Q Growth NA NA NA NA -3% 0% 8%
Rate
Licensing & 73,558 112,289 181,343 667,036 178,125 186,769 188,230
other revenues
Y/Y Growth 60% 53% 61% 268% 79% 3% -1%
Rate
Q/Q Growth NA NA NA NA -9% 5% 1%
Rate
As % of
Revenues
Google web 55% 60% 64% 66% 67% 66% 67%
sites
Google 44% 39% 35% 31% 30% 31% 30%
Network web sites
Licensing & 1% 1% 1% 3% 3% 3% 3%
other revenue
(unaudited)
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Cost 2005 2006 2007 2008 Q1 Q2 Q3

Cost of 2,577,088 4,225,027 6,649,085 8,621,506 2,101,504 2,107,971 2,226,240
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Revenues*
 As % of 42% 40% 40% 40% 38% 38% 37%
Revenues
Traffic 2,114,942 3,308,777 4,933,878 5,938,951 1,435,960 1,453,354 1,559,216
Acquisition Cost
As % of 34% 31% 30% 28% 26% 26% 26%
Revenues
Other Cost of 462,146 916,250 1,715,207 2,682,555 665,544 654,617 667,024
Revenues*
As % of 8% 9% 10% 12% 12% 12% 11%
Revenues
Research & 599,510 1,228,589 2,119,985 2,793,192 641,643 707,626 757,524
Development*
As % of 10% 12% 13% 13% 12% 13% 13%
Revenues
Sales & 468,152 849,518 1,461,266 1,946,244 433,941 469,039 497,812
Marketing*
As % of 8% 8% 9% 9% 8% 8% 8%
Revenues
General & 386,532 751,787 1,279,250 1,802,639 448,311 364,367 389,557
Administrative*
As % of 6% 7% 8% 8% 8% 7% 7%
Revenues
Settlement of NA NA NA NA NA NA NA
dispute with
Yahoo!
As % of NA NA NA NA NA NA NA
Revenues
Contribution to 90,000 NA NA NA NA NA NA
Google
Foundation
As % of 1% NA NA
Revenues
Total Costs & 4,121,282 7,054,921 11,509,586 15,163,581 3,625,399 3,649,003 3,871,133
Expenses*
Y/Y Growth 62% 71% 63% 32% 0% -4% -1%
Rate
Q/Q Growth NA NA NA NA -6% 1% 6%
Rate

(unaudited)
Profitability 2005 2006 2007 2008 Q1 Q2 Q3
Income from 2,017,278 3,549,996 5,084,400 6,631,969 1,883,591 1,873,894 2,073,718
operations
As % of 33% 34% 31% 30% 34% 34% 35%
Revenues
Impairment on NA NA NA -1,094,757 NA NA NA
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Equity
Investments
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As % of NA NA NA -5% NA NA NA
Revenues
Net Income 1,465,397 3,077,446 4,203,720 4,226,858 1,422,828 1,484,545 1,638,975
As % of 24% 29% 25% 19% 26% 27% 28%
Revenues
EPS (As
reported)
Basic $5.31 $10.21 $13.53 $13.46 $4.51 $4.70 $5.18
Diluted $5.02 $9.94 $13.29 $13.31 $4.49 $4.66 $5.13
Number of Shares ('000)
Basic 275,844 301,403 310,806 313,959 315,252 315,901 316,497
Diluted 291,874 309,548 316,210 317,514 317,221 318,536 319,746

Balance Sheet & Cash Flow Statement

(Figures in thousands, except per share amounts and EPS)
(unaudited)
2005 2006 2007 2008 Q1 Q2 Q3
Cash & 8,034,247 11,243,914 14,218,613 15,845,771 17,784,933 19,344,006 21,994,391
Marketable
Securities
Accounts 687,976 1,322,340 2,162,521 2,642,192 2,543,105 2,701,912 2,807,341
Receivable
DSO (in days, 41 46 48 44 42 45 43
using ending AR)
Property and 961,749 2,395,239 4,039,261 5,233,843 5,122,105 5,005,900 4,917,491
equipment, net
Total Assets 10,271,813 18,473,351 25,335,806 31,767,575 33,513,029 35,158,760 37,702,845
Cash Flow from 2,459,422 3,580,508 5,775,410 7,852,857 2,249,512 1,609,172 2,725,983
Operations
Capital 838,217 1,902,798 2,402,840 2,358,461 262,755 139,437 186,339
Expenditures
Supplemental Information
(Figures in thousands, except per share amounts and EPS)
(unaudited)
2005 2006 2007 2008 Q1 Q2 Q3
Stock-based 200,709 458,100 868,646 1,119,766 277,483 293,070 317,527
compensation
Int'l revenues as 39% 43% 48% 51% 52% 53% 53%
% of Total
Revenues
Ending 5,680 10,674 16,805 20,222 20,164 19,786 19,665
Permanent
Headcount
Sequential 88% 88% 57% 20% 0% -2% -1%
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Headcount Growth
Rate
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* Includes stock-based compensation charges

MARKET SHARE
Hitwise reported that Google's market share in the US was 72.11% in February 2009. "Yahoo
Search, MSN Search and Ask.com received 17.04%, 5.56% and 3.74%, respectively, and are
down year-over-year at -17%, -20%, and -10% respectively." comScore has different numbers
and they show that Google's market share in the US is much lower: 63.3%.

A report from the AT Internet Institute shows that Google's market share in France was 91.23%
for February 2009. The major search engines that trailed Google were Yahoo (2.43%) and Live
Search (2.29%).

GOOGLE MARKET CAPITALIZATION.

In nov 2007 Google Inc. was the 5th biggest US company, considering stock market
capitalization. In nov. 2007 Google shares had topped $700.
Google stock market capitalization in nov 2007 was $230 billion, in July 2008 was $170 billion.

By comparison in July 2008 Microsoft stock market capitalization was $240 billion, General
Electric market cap was $270 billion, Exxon stock market capitalization was $450 billion.

Why The Google Business Model Won?

The answer is a complex one, and involves more factors. It's a mix of smart decisions, excellent
marketing strategy, great advisors, highly innovative and risky business model, and great
products.
These are the key resons why the Google Business Model won:

1. Google had - and still has - a simple, clean, clear, minimalistic user interface. no frills, just the
logo and the search box - easy and fast to load. And this was a key feature with the slow internet
connections of the early years 1999 -2001 - while Yahoo and most of the other search engines
were more like generalistic portals, full of confusion, full of useless features and useless links,
full of annoying banner ads, heavy and slow to load.Google had a clear understanding on
psychology of perception, and how the interaction eye/brain works, while the bigger competitors
didn't.

Bottom line is: If the user visits a search engine, what he wants to get is simply that: just a search
engine.A search engine which is fast and reliable. If the user wants a generalistic portal, he goes
to a portal, not to a search engine.Larry Page and Sergey Brin, the Google Executives,
17

understood this, and this was what they delivered. And made their users happy.
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2. Google had - and has - reliable search results (not always, but most of the time). Page and
Brin's PageRank algorithm worked well.

3. Google got good advice from VC's and from Wilson Sonsini Goodrich & Rosati. Larry Page
and Sergey Brin have been advised and assisted from the beginning by John Doerr, VC Partner
of Kleiner Perkins and by Wilson Sonsini Goodrich & Rosati, the leading law firm of Silicon
Valley.
Insight on Google Business Model

4. Google introduced a smart, innovative and quite risky business model - Adwords - and the pay
per click concept. The risk proved winning, and the innovative business model worked. Still
today Adwords is Google main source of revenues.

5. In the following years, Google became a powerhouse with an impressive pipeline of new great
products - Google Maps, Google Earth, Google Video, Gmail. And slim revenues.

6. Google worked very hard on Brand Building. It seems that brand building was much more
important to them than just revenues and profits. The strategy worked. And it was a key asset in
the subsequent IPO at the Nasdaq.

7 Google was an innovator of the Business Model. Google delivered all these great new products
basically for free, enticing and luring million of users worldwide, with the result of building the
Brand in an outstanding, quite unbelievable way - and did it so fast.

Eric Schmidt was made CEO of the company, David Drummond, an attorney of Wilson Sonsini
Goodrich & Rosati who had advised Google founders since the early days, joined Google as
Chief Legal Officer, Wilson Sonsini Goodrich & Rosati took care of the IPO at Nasdaq.

At the IPO in August 2004 Google share price was set at $85, which to many financial analysts
seemed eccessive and unreasonable. In nov. 2007 Google shares had topped $700.
And in nov. 2007 Google stock market capitalization reached $230 billion, while annual
revenues reached $16 billion and profits $4 billion. An excellent return for Google shareholders

GOOGLE MARKETING STRATEGY

Google Inc., starting from just a smart algorithm, has developed a totally new business model, has
become in a few years the world leading search engine, has developed winning applications as
Google Earth, Google Video, Google Maps, Gmail, and is enjoying a huge success. Google, starting
18

from scratch, has won the challenge against a giant like Microsoft and against the previous search
engine market leaders Yahoo, Lycos, Altavista, Excite.
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MARKET SEGMENTATION
Google is dominating both the technology and mainstream media. I recently reported on Google's
acquisition of Applied Semantics a company known for its semantic text-processing technology
(http://www.infotoday.com/newsbreaks/nb030428-1.shtml). Most media coverage focused on
how the acquisition will beef up Google's targeted online advertising, but Applied Semantics'
technology is also used in enterprise solutions for categorization, summarization, concept tagging,
and event-extraction applications. It'll be interesting to see what Google does with this purchase.

"All Eyes on Google," the cover story in Forbes' May 26 issue, says that Microsoft now has 70
engineers working on search technology and is gunning for Google with help from Overture, its
partner and Google's main rival. Things could get interesting in this space. Remember that Google's
goal is to index all of the world's public information.

Google has also launched five international sites for its special News search, with more to come.
These sites provide local news for Canada, the U.K., Australia, New Zealand, and India. Each
maintains a global perspective but also delivers more targeted local headlines and sources. The
headlines on Google News are still selected entirely by computer algorithms, based on how and
where the stories appear on the Web. Because of its news source selection (4,500 sources
worldwide) and currency, Google News remains one of my most-used tools for tracking breaking
stories. (By the way, our NewsBreaks are indexed by Google News, usually within hours of
posting.)

ABOUT SMART PRICING

Google Network bids may be different from Google web search bids. Using smart pricing, AdWords
may automatically lower the maximum cost-per-click (CPC) bid for keyword-targeted ads that
appear on Google Network pages. While you set one maximum CPC bid, if our data shows that a
click from a Google Network page is less likely to turn into actionable business results - such as
online sales, registrations, phone calls, or newsletter signups - we may reduce the bid for that site.

With Google AdWords, you set a cost-per-click (CPC) bid or cost-per-1000-impressions (CPM)
bid. However, the AdWords Discounter works so you usually end up paying less than this amount.

Here's how it works: After we determine your ad rank, the AdWords Discounter calculates your
actual CPC or CPM. This is the actual amount you pay to maintain your ad's position above the
next lower ad. Your actual CPC or CPM is never more than the maximum CPC or CPM bid you
specify.
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SWOT ANALYSIS

STRENGTHS

• Vertical Strategy
Google has confidently the key for dominating the world in search engine is because of its a
easy user interference said that . This year, however, we have started seeing a clear trend towards
virtualization of the web

• Search
Google web service provide the facilities given to the people how to find what they are looking f
in the websites. Image search, Google news, blog search, Google map etc facilities given by the
Google.

• News
Thousands of presents news, thousands of new stories, thousands of information in a different
format they publics on their web papage
ge within a minute. On the home page of Google news
stories are presented in such a way so that the user can change it according to themselves. They
gather all types of news from the English language from the world wide. It’s a 100% algorithms
generated sites. and it is a important source of different media.

• Communication, Collaboration and Communities

The user can keep track important event, appointment and special occasion by using Google
calendar. Google calendar is afree online sharable calendar. Automatically indexed and
searchable on Google creat public calendar by the Google calendar by the prese presence
nce websites and
group. Google has a free web mail service known as GMAIL. This technology generally use for
the searching email .and over 2800 megabytes for the storage.its helps to connect the people and
share the information that the people who are int
interested
erested to join the gmail. Google also started the
orkut facilities to the Google user. Orkut gives the facilities ti the user to search your friends and
connect to the user. User can join and manage the community by using the Orkut. User can put
their photos
tos in the orkut and they can update their profile. Orkut is broadly use in brazil and
India. BLOGGER Blogger is aweb based publishing tool that’s provide the facilities to the user
that they can publish their web instantly by using web blogs. Blogger whi which
ch are available in
Google has advantage of having indifferent nine language with different features. And they are
also spam protected. In the blog the user can give the ads free of costs. Google has boundary
mark to claim compelling alternative to the M Microsoft.
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 • Google GEO

The specific function of Google is Google earth which provide user with facility to see the
location and learn about that area and they can get the satellite and aerial images from their
desktop , 3D topography, street maps, by using Google earth. In the Google earth they describe
the location of business, school, park and other parts of the points of interest around the globe.
The direction and other mapping service helps people by the Google maps. The free 3D
modeling tools is a free Google sketch up is help the modeling the 3D buildings. Google sketch
up become more popular in the architectural professional.

• Books
Google books provide information to purchase the books online. User can also read the inside of
the book online from the selected books. Without any cost Google allow the author list their
book in the search engine. But the only requirement is that author should have account in the
Google.

• Videos
Google Video has millions of videos indexed for viewing. In late 2006 the Google acquired You tube for
$1.65 billion. In the You tube the user can search and watch the most updated tv serials, movie clips,
music videos, documentaries, personal productions and more over the Web. In sep 2007, 2.6 billion of
videos were viewed from you tube which is the part of Google..

• Finance

They provides financial information and news on companies .One of the feature is also that its
sites provide the latest data and latest news from the financial industry. But this sites is very far
behind from Yahoo! Finance, MSN Money and CNN Money in terms of content.

• Photo sharing

Google is having photo sharing option in the Picasa web album. The very functionality of this
site is that it provides the user with certain features like software locating, uploading, organizing
and sharing of photographs and albums.

WEAKNESS

• Context

IT is very difficult to Google to capture context because Google having one search box in its
delightfully simple interface. Unless the user clicks on news, shopping, or photo.Google from the
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starting point they would not know how to search for airline tickets or hotel reservation. From
the separate chosen context Google don a decent jobs.
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 • Content

There is one area where the Google is lagging behind yahoo. Google is always known as a
finder not as a producer. It has started tackling “content packaging” to an extent, especially
within News and Finance. Google is strong position generate video content in the you tube.

• Commerce

Google earns 99% of its revenues from advertising and the remaining 1% comes from licensing
of service. Google portfolio does not have commerce feature. Google Checkout is starting to
look like a tree line road that will occurring due course due to lead to commerce by becoming a
competitor to PayPal. eBay, Google’s top customer, does not like this at all.

• Personalization
The user can customize their page and they can organise the Google page like in orkut, Picasa,
you tube etc. The user can go to the other user account and see the profile. This is the criticism of
the privacy

• Business model
From the advertising Google can generate almost all of its revenue. Google charges very less
amount to the ad word and ad sense for the one time activation fees. Google Ad sense are under
serious threat from vertical AD network

• Acquisition strategy

This year Google made several acquisition. The important acquisition were Ads cape,
Trendalyzer, Marrakech, Feed Burner, Peak Stream, Grand Central, Postini and Jaiku. The
acquisition of double click Google complete the $3.1 billion. The acquisition strategy are
different from the other company. . Google has mostly aimed on acquiring early stage
technology startups that can control of the supply of the money to its users rather than increasing
the number of users. For an example You tube attempt to gain prevailing position in the expand
suddenly with a large noise video sharing market. Google has done well to combine and
prelaunch startups under its brand quickly. Google News is popular among Google users and the
Company could look at consolidating its position in the news space by acquiring social news
sites like Dig. The Company could also consider acquiring News vine, Now Public, and Shout
Wire. Tere some section where the Google is not able to do something such as get information
from the share market, air ticketing, hotel reservation, real estate etc. but other company like
Yahoo, Kayak are able to do. Since January 2004 kayak raise the total of $30 million from Accel
Partners, General Catalyst Partners, Sequoia Capital and America Online. In the real state trulia
22

acquiring the space of the google. Since 2004 trulia raised $10 million in Series C funding led by
Sequoia Capital.
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 • Gaps In The Google Portfolio

Having the some weakness in finance and photo is the web largest vertical. Google is also not
able to give big vertical like Jobs, Auto, Travel, Real Estate, Health, Personals. According to the
lukewarm after getting the reaction from the user he tells that he will summarize the issues, they
are looking for airline tickets, hotels and car rental. All this information comes into a search
engine called Kayak. There is no reason to go in the Google. Google will slowly lose big chunks
of users in important Contexts such as Travel, Jobs, etc. To address this issue, Google needs to
either acquire or invent

THREATS FOR GOOGLE

Now a days everyone knows that recently google has achieved a major milestone in being
selected as the most admired brand in the world, overtaking Microsoft which was ranked no.1 in
terms of website visits, and also maintaining market capitalization larger than IBM. The other
milestone which Google has achieved is in terms of Industries including: computer hardware and
software, Advertising, publishers, entertainment and telecoms. And ofcourse they have managed
enterprising little startups like us uneasy. Every quarter the Red Bricks Media management team
meets to review googles business performance and refine their strategy. At the time of meeting
they discuss about their Threats as other companies do, The reasons which causes CEO Eric
Schmidt to lose night sleep? Here are some of the threats to Google.

• Peer Search

There is a question asked by expert whether Google is worried about peer search? And
then the expert people rank search a result which shows and provide some interesting and related
result than an algorithm yet can provide. Sometimes in the recent years this type of search
worried google. This was happened when Yahoo acquire del.icio.us, a pain to write by the way,
and Flickr ,for photos. Heralded by many for it as the other way of search, neither of them had
helped yahoo shore up their power in search market share. The main issue for this model is that
many people don’t have time to invest rating to their search results. Everyone in this world
wanted the results fast and accurate and Google provides this facility because of which people
are not much concerned about peer search.

• Competitors

Does Eric Schmidt the CEO of Google must have lose his sleep because of his
competitor search engines? Absolutely no, if you are a good executive u should never
23

underestimate your competition, From the recent records and research it was found that MSN
and Yahoo there was no indication that they are going to be grab search market share from
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Google. As the reports of Comscore shows that the market share of Yahoo in the beginning of
2006 was 31.8% and which falls to 26.8%, which shows that Google is the best Search engine
preferred by the people or the users. Googles should be aware of new search engines which
promise to improve search experience compared to them. There is one best example of new
search engine which was supported by significant investors that is Powerset, This new search
engine claims that it improves search their yet to be launched natural search algorithm. But
Google is a real big Giant in search engines and which can buy any of these new search engines
any time it wants.

• Merging of Microsoft and Yahoo

Since there were many discussions from MSN and Yahoo that at some point of time
they may merge but the question here is are they really wanted to merge or just scaring Google.
If the answer is that both the companies merge than it need not be a fear factor for Google
because none of the company shown that they are consistent in search engine in competition with
Google, for example when we have two lab technicians also they cant make rocket, in the similar
way if they both merge also Google need not worry much.

• Content

Obviously this one is big threat and that is why Google purchased You Tube. But do we
hope this was the best strategy acquired by Google to get its hand on content? Recent
developments such as Viacom’s lawsuit suggest the answer may be no. The main issue for
Google is that how it will legalize in terms of money to content on You Tube. The easiest
strategy implemented is to charge for making downloads or through user sign up subscriptions,
but without accessing the proprietary content, how does Google get people to pay to see the
latest amateur video? Would anyone pay to see someone with nice dance moves performing at a
junior talent show, this was the most viewed video on You Tube? Certainly Google gets huge
amount of eyeballs through this site, but monetizing these with some banner ads may certainly
would not contribute much to the bottom line. And, the bigger threat to Google from content, and
can u expect what should make Google even more nervous? It is that someone like his
competitor such as Yahoo or Wikipedia will analyse how to leverage the old and new visitors
that come to their site for content to stay for search as well. And if this serious threaten happens
to Google’s search market share, then it could start to fall dramatically–which leads a threat to
their future growth.

• Google depends partially on some of the portals like AOL., and when these contracts get
terminated google may lose some share of its entire revenue.

• Since there is not much time for entry barrier in this business, there is a chance that many
24

competitors could emerge with better interface, same service and sharp search and could catch
up Google market.
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• All we know that its so confusing when Google says about its cost per click ranking and
charging policy may disappoint at some time to the advertisers which may lead losing customers
by the company.

• Rivalry and Competition: Some of the portals like Yahoo which provides more services and
solutions with conventional search than Google do. Because of these added attractions by such
portals google may start loosing its users.

MSN is coming up with its new operating system known as LONGHOM which would be
having IMPLICIT QUERY feature. The significance of this operating system is, it could search
news sources, blogs, hard drive files, webs, email attachments and all form of keyword search
without using a browser. Users may search directly from already established Microsoft
applications such as MS word.

Since Overture has been Google’s very old competitor. In terms of advertisement
Google has acquitted more than Overture but still Google lags with 20% behind from overture in
market share and everytime there is a competition in collaborating well known portals like
Yahoo, MSN and AOL.

• Its scale might also become a liability in order to cop up with enhancing and new search
techniques if company’s ability to modify its algorithms and database architecture was
constrained by its server infrastructure and also on the size of its index.
• If Google wants to become a portal, it may lose its comprehensiveness and simplicity because
of which the users like it.

• In terms of personalized search Google can get trapped for this it had to capture user’s
personal information.

• If in case that Google wants to merge with well established portals it will definitely lose its
well earned brand name.

OPPORTUNITIES

• To survive in this tough competitive world Google can add sticky like chat rooms and email
systems to attract its regular and new users.

• It can increase switching charges by tracking users’ search histories only if they permit and
could remind them through emails for their relevant search updates as per their personal interest
and requirements.
25

• Yahoo and MSN are known as mass-market portal, Google can also become a mass-market
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portal and can increases witching cost for its users.

• Google can increase localized and personalized searching and can also add localized paid
listings of advertisers.

• It can start with some new services like product search, multimedia, print media and private
database.

• Just to lock in large number of advertisers and users Google can merge with an established
mass-market portal.

• Google can start providing full fledged services on hand held mobile devices to acquire
market beyond conventional internet.

Opportunities to Google compared with Microsoft

When we look at a glance, Microsoft and Google are the companies which don’t seem to be the
competitors, The Main product Google deals with is search engine and Microsoft is a company
which deals with operating systems and other products. And the revenue comes for Google is
mainly from Ads. From these we say that there is no conflict between both these companies.

But still there are some points where Google and Microsoft cross their paths. Microsoft has his
own product that is Web search engine called Live Search, But according to some web analysis
firms like Hitwise and comscore, Google search accounted over 60% of all online searches in the
year 2008. whereas Microsoft accounted less than 10 percent.

Both Google and Microsoft offer suites of productivity software. As we all know that Microsoft
Office is a reknowned software suite which includes word processing, word excel and database
management applications. These applications are difficult to learn and a normal man need not
use these applications but it is used only by the professionals who work regularly and rely on
their work. Google has introduced its own productivity software suite: Google Docs. This
productivity software is Web based, it means we can access its application with the help of Web
browser. Google’s productivity software is not that difficult as Microsoft, it is so simple that a
normal man who don’t have much knowledge about softwares can use its software. Consumers
can access Google’s software from any computer which has an Internet connection. This was the
main opportunity that Google have compared to Microsoft.

Web-based e-mail platforms are offered by both the companies. And both are investing millions
of dollars into cloud computing solutions and they are known as building the importance internet
for average consumer. Google has an advantage over Microsoft in terms of Web based
company: however, Microsoft has years of experience in consumer research and application
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development.
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WTO POLICIES AND GOOGLE

Internet censorship liable to WTO challenge

GENEVA (Reuters) - Censorship of the Internet is open to challenge at the World Trade
Organisation as it can restrict trade in services delivered online, a forthcoming study says.

A censorship case at the WTO could raise sovereignty issues, given the clear right of member
states to restrict trade on moral grounds -- for example, by blocking access to child pornography
websites.

But a WTO ruling could set limits on blanket censorship and compel states instead to use more
selective filtering, according to the study, to be published on Thursday by think-tank ECIPE.

"Censorship is the most important non-tariff barrier to the provision of online services, and a
case might clarify the circumstances in which different forms of censorship are WTO-
consistent," said the study by Brian Hindley and Hosuk Lee-Makiyama.

"Many WTO member states are legally obliged to permit an unrestricted supply of cross-border
Internet services," they wrote in their report, obtained in advance by Reuters.

Many countries censor the Internet for political or moral reasons. China has developed one of the
most pervasive systems, in Cuba all unauthorised surfing is illegal, and many Western countries
limit access to child porn sites.

Internet use is particularly strong in Asia. China, with 298 million people online, overtook the
United States in numbers of Internet users in 2008.

BUSINESS IMPACT

Internet censorship can have a serious impact on businesses, it said, noting how local search
engine Baidu, which follows official rules on censorship, has overtaken global leader Google in
the Chinese market.

There have even been reports that the authorities rerouted requests for Google.com and other
international search engines to Baidu's site.

In the third quarter of 2009 Baidu had 64 percent of the 2 billion yuan ($293 million) Internet
search market in China, while Google had 31.3 percent.
27

Back in 2002, Baidu had 3 percent and Google 24 percent, the study said.
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In Japan, where Google might face similar linguisti
linguisticc entry barriers to China, it has more than 90
percent of the market.

A challenge at the WTO by Antigua to U.S. laws restricting online gambling showed that a
member's commitment -- once made -- to opening up in a sector takes precedence over
subsequent bans
ans and restrictions, even if they do not discriminate between domestic and foreign
suppliers, the study noted.

And a WTO panel ruled against Chinese restrictions on imports of audio audio-visual
visual entertainment,
including the use of domestic distributors to cont
control
rol access to the material, in response to a U.S.
challenge. China is appealing against that ruling.

WTO rules allow members to restrict trade to protect public morals or public order, but those
measures must be necessary and disrupt trade as little as po
possible.

The study argues that a strong case can be made against disproportionate censorship that disrupts
commercial activities by more than necessary to achieve the goals of the censoring government.

Proportionate censorship would mean selective filteri

filtering
ng rather than arbitrary and entire
blockages or permanent bans.

Some states might argue such filtering would impose an impractical burden, but others, such as
China with its "Golden Shield" -- known in the West as the "Great Firewall of China" -- already
have well-staffed
staffed infrastructure in place for selective censorship.

"There is a good chance that a panel might rule that permanent blocks on search engines, photo
photo-
sharing applications and other services are inconsistent with (WTO services) provisions, ev
even
given morals and security exceptions," it said.

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R & D INITIATIVES

Google's Stunning New Initiative: Renewable Energy Cheaper Than Coal

"Google.com and Google.org have just announced one of the most promising new initiatives to
address the global climate crisis. I hope the grandchildren of today's adults will someday look
back and say this was a turning point in commercializing the cleaner/cheaper energy solutions
that saved our world." -- Felix Kramer, Founder, CalCars.org

Google.com founded the Google Foundation in 2005, and then established Google.org, with 1%
of the company's original equity and 1% of profits. Google.org, which can both invest and
donate, is focusing initially on:
# Climate change
# Public health
# Global development

As CalCars-News readers know, Google.org's first project in Climate change is RechargeIT,

launched in June 2006 to promote PHEVs and V2G technologies. The program included a PHEV
fleet, grants to several organizations including CalCars and a $10M investment program: of 350
companies responding to the Request for Proposals, 40 are now in the second round. At the same
time, the company launched initiatives for efficiency in computing operations, solar power and
other measures to "green" its facilities.

Now both Google.com and Google.org take the next step -- and it's potentially of far greater
significance. If we take as a given that we will increasingly electrify not only vehicles but
everything that directly uses fossil fuels, at the same time as we improve efficiency throughout
the global economy, the arrow points to cleaning the grid as the necessary corollary.

The next step is called "RE<C," meaning "Renewable Energy Cheaper Than Coal." This is the
ultimate challenge. NYTimes columnist Tom Friedman and others have said that renewable
energy won't succeed until it meets the "China price" -- that is, until it's cost-competitive with
coal in China (and also in India and globally). Once this happens, it's no longer a question of
moral appeals to "do the right thing," but instead to do what pays.

Getting to the point where renewable energy can win in the marketplace involves both business
and political strategies. We know there's no level playing field in the marketplace. Over a
century, the priorities, resources, incentives, loan guarantees, infrastructure support and straight-
out subsidies have gone overwhelmingly to "big carbon" -- oil, natural gas and coal (along with
29

massive support and insurance programs to fund nuclear power). The process of changing those
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priorities (and the research, development and demonstration programs of the Department of
Energy (DOE) that follow them), continues in fits and starts.

Now we're seeing a second wave in which new technologies finally have the potential to
challenge fossil fuels. That's what this RE<C is about. We can count on Google.org and
Google.com being smart about how each of them fits together in this new program.

Of course, Google isn't the only player in this area: corporate and venture capital investment in
CleanTech is expanding at a breakneck pace. Just as we think there's nothing better for plug-in
cars than helping to encourage the start of the Great Automotive Race of the 21st Century, we're
hoping that Google's new program will not only succeed on its own but will catalyze new waves
of innovation globally.

COST CONTROL, COST REDUCTION AND COST MANAGEMENT STRATEGIES IN

APPLICATION

Neither snow, nor rain, nor heat, nor gloom of night, nor the winds of change, nor a nation
challenged, will stay Google (GOOG) from the swift completion of its seemingly inexorable
march toward world domination. Google may not be the Postal Service, but it could be nearly as
ubiquitous. In fact, if Google is acting like any government agency, it's the Federal Reserve,
which prints money.

Google continued to print money last quarter, according to Wednesday's earnings report, which
handily topped Wall Street estimates, sending the company's stock price nearly three percent
higher in after-hours trading.

Google's results give credence to the company's argument that it is better positioned than its
rivals to handle economic turmoil. Taken with the results delivered by IBM (IBM), the blue-chip
tech giant that also beat Wall Street expectations, Google's strong profit haul is further evidence
that the technology sector is shaking off the recession. The search juggernaut reported net
income of $1.64 billion, or $5.13 a share, up from $1.29 billion, or $4.06 per share, a year
earlier. Total third quarter revenue was $5.94 billion, up from $5.52 billion in the second quarter
and $5.54 billion a year ago.

UBS internet analyst Brian Pitz called the results a "solid beat" in a note to investors shortly after
the announcement. Pitz called the results "above our and Street estimates...on continued cost
control" while earnings per share "came in better due likely to lower than expected hedging
costs." Pitz said the increase in paid clicks was "likely due to better pricing in categories such as
30

retail and auto."

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During a conference call after the results were announced, Google Chairman and CEO Eric
Schmidt called the results "all good news from our perspective" and said, "We believe the worst
of the recession is behind us." He said the company, which has 20,000 employees worldwide,
had slowed its hiring during the recession, but would be looking to increase its headcount
moving forward. The company appears to have managed its expenses very well during the
downturn, while continuing to innovate in its core business, rolling out new features on its
myriad web advertising products.

Schmidt said the company's performance -- aggregate paid clicks up 14 percent year over year --
has "given us the business confidence to invest heavily in the future as we see it." He said the
company would continue its philosophy of 70-20-10, in which engineers spend 70 percent of
their time working on Google's core search ad business, 20 percent on ancillary projects, and 10
percent on their own projects.

Schmidt went on to say that despite the company's ventures into mobile and cloud computing,
Google remains focused on its core business of web search advertising. "We want to get to the
perfect search engine," Schmidt said.

The company certainly has the resources to throw around: It is sitting on a mighty cash hoard of
roughly $20 billion. Schmidt said Google is "open for business in making strategic acquisitions
both large and small." But for large acquisitions, there would have to be "some strategic
rationale" such as a revenue boost or "large user base." Twitter anyone?
Turning to the company's mobile efforts, Schmidt predicted that "Android adoption is
literally about to explode. All the necessary conditions are there." Schmidt noted that Android
had gone from being offered by one carrier on one device in one country to 12 devices in 26
countries on 32 carriers in less than a year. Google's Android market currently has 10,000
applications available.

One of the key questions facing the company is how YouTube, Google's giant video site, intends
to add to its parent's bottom line. "We're really pleased about YouTube's performance, and it's
completely in line with what we said in the last call," said Patrick Pichette, Google's CFO. He
said YouTube is on "a path to profitability in the not to distant future," adding that the video site
is currently monetizing more than a billion video views per week.

GOOGLE IS NOT RECESSION-PROOF

It's nice being the industry leader. People start to forget that economic principles apply to you as
much as anyone else. Say, you're an executive at Google and you have a conference call with
analysts to announce lower-than-expected Q4 2007 results.
31

Why did no one ask whether the bulk of this drop was not attributable to lower-than-
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normal click-through rates (CTR) in a softening market?

Analysts and reporters will believe anything that you say, if you're the industry leader:

Aggregate clicks were only up 30% from fourth-quarter 2006 to fourth-quarter 2007, in contrast
to the 45% growth in the third quarter. Reyes said that the growth deceleration was likely due to
the "impact of quality improvements" that Google made its ad platforms, like changing the
clickable area of AdSense ads and standard algorithmic tweaks. The changes "reduced the
number of accidental clicks," (Google CFO George) Reyes said.

There isn't a consensus view, but I think it's fairly safe to say that while analysts and
commentators disagree on the impact of a recession on display advertising, they believe that paid
search advertising will weather a recession fairly well. A recent piece in Wired magazine said
that "Google Looks Recession Proof" and an analyst's note on Seeking Alpha suggested the same
view. Broadly, the views shared by the biggest camps are:
• display advertising could either decline as a result of limited ability to track spend to sales,
or
• display advertising could be propped up by ad dollars fleeing from traditional to online
media,
• but paid search advertising (PPC Ads for simplicity's sake) is recession-proof, because
Marketing Return on Investment (MROI) calculations are fairly simple given the level of
tracking that PPC Ads offer, so ad dollars will leave this media last. After all, how do you
motivate reducing ad spend on media that provides a clear MROI unless you've already
trimmed all your other ad inventory budgets?
While it's true that Google's revenue is derived from its advertisers (not its searchers) and
sophisticated advertisers will be loathe to reduce PPC budgets during a recession, to believe that
this means that Google is recession-proof is to ignore the cross-side network effects that occur on
the Google advertising platform between advertisers and searchers. The mechanism by which I
suggest that Google's revenue from PPC ads reduces during an economic downturn is not
through the reduction in advertiser budgets (which may or may not happen), but rather a highly
likely reduction in its ability to monetise its ad inventory. As consumers tighten their belts, at
least two things happen simultaneously online.
• Click-Though Rates Decline: Consumers will be less inclined to click on advertising and
more inclined to research their acquisition more thoroughly in forums, review sites, etc.
before making a purchase. Ceteris Paribus, CTR on organic listings will rise and Ad CTR
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on search engines and Google ad network sites will decline.

• Conversion Rates Decline: Searchers will click on more PPC ads and browse through
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more sites in order to get the best combined item pricing and shipping deals. The time that
 expires from the time that they decide to investigate the purchase, to the point where they
have the best deal and finally committing themselves to making the purchase will take
longer than was previously the case.
The impact of a reduction in the Adwords CTR on Google's revenue is clear: less revenue per
impression served. The impact on Google of a reduction in site conversion rates is less clear.
With the exception of small unsophisticated long-tail advertisers, merchants running PPC
campaigns have cost per action or acquisition (CPA) targets. A decline in the conversion rate,
means that in order for a merchant to achieve the same CPA he must pay a lower price per click
for the search inventory. His alternatives are unlikely in a recession: increase price to regain sales
margins or reduce sales margins by paying a higher CPA. Even though an advertiser may
increase or maintain his PPC ad budget during a recession, for a given CPA, the rate at which the
advertiser spends his budget, is lower than in more robust economic conditions. The long-tail
advertisers may reduce their PPC ad spend, simply because they don't allocate budget to the
media on the basis of its trackability, so its fair game.

It's fairly common knowledge in the online marketing industry that the biggest problem with
search engine inventory is that there is not enough of it. Google cannot create new impressions in
an existing developed marketplace in response to advertiser demand for more impressions, so the
argument about the migration of ad dollars from traditional media to search during a recession is
a moot point, except in market segments where there is currently little PPC competition (if you
can find it, let me know!). Google can only grow its impressions by increasing:

• the frequency of searches by existing users,

• new searchers that didn't use search engines before, and
• users that migrate from other search engines
• the traffic to sites in its search and advertising networks (over which it has no direct control,
unless... no, they wouldn't do that!)

Declining Paid Search ad click-through rates and site conversion rates during an economic
downturn, together reduce the revenue per impression that Google earns (and consequently
reduces its overall revenue) and there is precious little that Google can do about it.
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