Google’s strategic direction serves as a response to the different external forces in its industry environment. Porter’s Five Forces analysis model is used to understand this strategic direction. Google was founded in 1998 and has already achieved a leading position in various markets, such as the online advertising market. As a large enterprise, Google now has more than 57,000 employees in different locations around the world. In using the Five Forces model to analyze Google’s business situation, one can identify the characteristics of external factors in the company’s industry environment. Google’s continued success is based on the firm’s ability to address these external forces.
Google’s Five Forces analysis (Porter’s model) on the external factors in the company’s industry environment shows the interactions of the company with the five forces of competitive rivalry/intensity of competition, bargaining power of buyers/customers, bargaining power of suppliers, threat of substitutes/substitution, and the threat of new entrants. Google’s strategic choices are a response to these external factors.
Overview: Google’s Five Forces Analysis
The Five Forces in Google’s external/industry environment can be summarized as follows:
- Strong competitive rivalry or competition
- Weak bargaining power of buyers
- Weak bargaining power of suppliers
- Moderate threat of substitutes or substitution
- Moderate threat of new entrants or new entry
Recommendations. Based on the Porter’s Five Forces analysis on Google’s business, competitive rivalry or competition exerts the strongest force on the company. The external factors of the threat of substitutes (substitution) and the threat of new entrants (new entry) are only moderate considerations in Google’s industry environment. The bargaining power of buyers and the bargaining power of suppliers are minimally significant external factors. This Five Forces analysis shows that Google should focus on addressing the strong force of competition.
Competitive Rivalry or Competition
Google experiences the strong force of competitive rivalry or competition. Under Porter’s Five Forces model, competitive rivalry limits the growth capabilities of firms. Google must consider the following external factors that contribute to such strong competitive rivalry:
- Large number of firms (strong force)
- High diversity of firms (strong force)
- Low switching costs (strong force)
Google has many competitors, such as Yahoo, Bing, Apple, Comcast, and others. Because of the diversity of its products, Google also has a diverse set of competitors. The company now offers Google Glass, Google Fiber and Chromecast, while the Google driverless car is under development. This condition exerts a strong force on Google’s business. Customers experience low switching costs because it is easy for them to move from Google to other companies. Thus, the low switching costs exert a strong force on the firm.
Bargaining Power of Buyers
The bargaining power of buyers is weak in influencing Google’s business. In Porter’s Five Forces analysis model, such a weak external force is only minimally considered in strategic decisions. The following external factors contribute to the weak bargaining power of buyers on Google:
- Small size of individual buyers (weak force)
- High and increasing demand from buyers (weak force)
- Moderate quality of information (moderate force)
Each buyer makes only a small contribution to the revenues of Google, thereby exerting only a weak force on the company. Because of the high and increasing demand for products from Google and other competing firms, individual buyers exert only minimal influence on the company. The moderate quality of information refers to the limited knowledge of customers. For example, advertisers may access Google’s analytics data but such data is still limited in informing the advertisers about the dynamics and complexity of the online advertising environment.
Bargaining Power of Suppliers
Google experiences the weak power of suppliers. In Porter’s Five Forces analysis model, the bargaining power of suppliers is weak when there are many suppliers to choose from. The following external factors are the ones that contribute to the weak effect of suppliers on Google:
- High availability of supply (weak force)
- Large population of suppliers (weak force)
The high availability of supply in combination with the large population of suppliers minimizes the effect of the bargaining power of any single supplier on the business of Google. This means that it is relatively easy for the company to move from one supplier to another. Google’s suppliers are diverse because the company has a diverse array of products, such as Google Search, Google Glass, and Google Fiber, among others.
Threat of Substitutes or Substitution
Google experiences the moderate threat of substitutes or substitution. These substitutes include other advertising channels, such as television, radio, and print media. Google must consider the following external factors that contribute to the moderate threat of substitutes/substitution:
- Low switching costs (moderate force)
- Moderate to high availability of substitutes (moderate force)
The low switching costs make it easy for customers to move from Google’s advertising services to the substitute services. In Porter’s Five Forces analysis model, this condition exerts a moderate force on the company’s business. Also, the moderate to high availability of substitutes means that customers have considerable options in case they want to move away from Google. The overall impact of these external factors is the moderate threat of substitution against Google’s products.
Threat of New Entrants or New Entry
The threat of new entrants (new entry) is moderate in influencing Google’s business. These new entrants can be new ventures or investments of large technology companies, as well as start up companies offering products similar to Google’s. In Porter’s Five Forces analysis model, the following external factors contribute to the moderate threat of new entrants/new entry against Google:
- Moderate cost of doing business (moderate force)
- High cost of brand development (weak force)
- Easily fulfilled regulatory requirements (strong force)
The moderate cost of doing business means that a considerable number of startup companies and other firms can enter the market and directly compete against Google. Also, it is easy to satisfy regulatory requirements, thereby also making it easy for new entrants to get established and compete against Google. However, the cost of brand development is high. As a result, many startup companies might find it difficult to sustain their operations in the long term, especially because Google already has one of the most valuable brands in the world.
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