Google Inc.

The rapid growth of the internet worldwide in the early 1990s sparked a technological revolution that continues to shape the world we live in today. This boom brought with it the perception of limitless opportunities and success in the "dot com" world. As a result, entrepreneurs of all kinds took to the internet with their ideas. After the initial rush into this new-found gold mine, the advantages of the World Wide Web were apparent to all who came to know and love it. While the success of opportunities appeared to have come to a screeching halt, several entities still continue to make the best of the situation. Today, names such as EBay and Amazon are commonplace in almost every household with a computer and internet connection. But, perhaps even more surprisingly, the name Google has become more than just a silly word with a meaning most people do not know. It represents a story of unbelievable success in a market that did not take kindly to small competitors. Google Inc. is now a major public corporation in the United States, but going back to its inception, growth, and success, we witness a truly compelling story.

Two graduate students, Larry Page and Sergey Brin came together to work on a research project at Stanford University's computer science department. At the time they began working together in 1995, they looked into developing a new search technology that would operate more efficiently and on a completely different principle than existing web search engines. At the time, the most common method utilized by the major search engines on the internet was returns based on how often keywords appear in a particular website. The theory behind Google's search technology approached the subject from a different angle. Page and Brin hoped to produce more relevant results, rather than something based on frequency. As a result, not only was the engine to be highly reliable, but it had to produce results with unprecedented efficiency. Complex results could be posted in under a second. This technology would continue to be built upon through 1998. Interestingly enough, Google was not the first search engine to be developed at Stanford. Yahoo and Excite, two major search engines, were also born at the computer science department there (Laudon & Laudon, 2007, p. 220).

Subsequently, Google is now a top Internet destination and possesses one of the most recognized brands in the world and available to anyone with an Internet connection. Google maintains the world's largest online index of web sites and other content and revenue is generated by delivering relevant, cost-effective online advertising. Businesses use the Google AdWords program to promote their products and services with targeted advertising. Furthermore, Google maintains advertising on thousands of third-party web sites using the Google Network and Google AdSense. While Google continues to expand its product line into new and existing territories, the company considers its primary industry to be web search technology. However, Google also faces competition from online advertising companies, particularly those that provide pay-per-click services (The Washington Post, 2006) Currently, Google considers its primary competitors to be Microsoft and Yahoo. Future operating performance will be directly related to the role of information technology in the marketplace. Information technology is an area experiencing constant growth and innovation, which existing companies must address in order to overcome product obsolescence. Moreover, a variety of factors exist that will affect the success and future growth of Google. First, Google must protect its proprietary search algorithms accounting for its success to date. If such methodology reaches competitors, its competitive advantage is suddenly lost. Secondly, it must be able to maintain its competitive advantage over Microsoft in areas of expertise. Microsoft is a proven industry leader in many aspects of technology and has the financial strength to compete in every capacity (Builder, 2006).

Nevertheless, Google Inc. now enjoys a status of financial viability and relative maturity in the internet community. In terms of the entrepreneurial life cycle, Google has enjoyed the protection of a university environment and received its commitment of financial resources from generous outsiders. The actual developmental resources obviously came from the founders of Google, but at no real opportunity cost, except for that of having not been in the graduate program at Stanford in the first place. Next came Market Entry, defined by the profitably and/or success of the venture. One could arguably say that there was really not much to lose at this point, but that would be a difficult message to relay to both the founders who spent years developing Google, and the entities who funded the project. Market Entry was indeed marked with immediate success and thus sparked the next stage, full launch and growth. With this in place, a strategy needed to be developed to ensure the long term standing of the company. This may have been a key factor in the transformation of Google from a private entity, to a private corporation, and finally, to a multifaceted public corporation (Lawrence, 2006)

The growth in revenues that Google is experiencing is astonishing. However, all of its revenues at the moment are the direct result of two business segments. The two primary sources of revenue are Google owned sites and the Google network, each accounting for approximately 70% of revenues (Google Inc, 2006). For this reason, the cost of revenues becomes a key account on its income statement. As demonstrated in the vertical income statement, the cost of revenues rose from 30% in 2002 to 40% in 2006 (Google Investor, 2006). This is ideally due to traffic acquisition costs (TAC) that Google incurs as it drives consumers to its sites. While these costs have been rising relative to sales, the company believes that its future success will be a result of its increased knowledge in effectively and efficiently generating traffic. As mentioned, quarterly revenues increased significantly throughout 2006, while traffic acquisition costs as a percentage of revenues began to decline. In addition, the financial statements demonstrate that liquidity remains strong. The horizontal balance sheet illustrates that cash and cash equivalents rose 639% over the three-year period beginning with fiscal year 2003. Furthermore, short-term investments increased 1839% over the same period (Google Investor, 2006). For fiscal year ending in 2005, Google reported a net profit margin of 12.52%, slightly lower than the industry's 13.45%. It appears that this is largely due to the elevated effective tax rate that pertains to Google, as the company's operating margin is actually superior to the industry average (Google Inc, 2006).

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