Google Five Forces Analysis (Porter’s Model) & Recommendations

Google LLC’s (formerly Google Inc.) strategic direction responds to the different external forces in the industry environment. Michael E. Porter’s Five Forces analysis model is used to understand this strategic direction and corresponding management initiatives. Founded in 1998, the company enjoys a leading position in the online advertising market. As a large international enterprise, the technology business has operations in key strategic locations around the world. A Porter’s Five Forces analysis of Google’s business situation identifies the characteristics of external factors in the business environment. The industry environment involves various industries and target markets, considering the variety of technology products and services that the company offers. The fulfillment of Google’s vision statement and mission statement partly depends on the firm’s ability to address the external forces assessed through Porter’s Five Forces analysis framework. The company’s managers must implement strategic measures to maintain business competitive advantages while addressing competitive forces from other technology and online service firms.

This Five Forces analysis of Google considers the external factors in the industry environment involving online services, software and hardware, in terms of 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 generic competitive strategy and intensive growth strategies relate to these external factors.

Overview: Five Forces Analysis of Google LLC

A Five Forces analysis of Google LLC requires consideration for the conditions of related but different industries and markets. For example, the external analysis accounts for the web search market, along with the cloud services market and the digital advertising industry. The Five Forces in Google’s external/industry environment can be summarized as follows:

1. Competitive rivalry or competition – Strong Force
2. Bargaining power of buyers – Weak Force
3. Bargaining power of suppliers – Weak Force
4. Threat of substitutes or substitution – Moderate Force
5. Threat of new entrants or new entry – Moderate Force

Recommendations. Based on this Porter’s Five Forces analysis of Google’s business, competitive rivalry or competition exerts a strong 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 the online company’s industry environment. The bargaining power of buyers and the bargaining power of suppliers are minimally significant external factors in the information technology and online services industry. This Five Forces analysis shows that Google should focus on addressing the strong force of competition. It is recommended that the company implement strategies to further strengthen its market position and competitive advantages in Internet advertising and other online services. For example, as a technology business, Google must continually innovate and be on the cutting edge of new information technology and related technological applications.

Competitive Rivalry or Competition: Strong Force

Google faces the strong force of competitive rivalry or competition. Under Porter’s Five Forces model, competitive rivalry limits the growth of firms in the technology and online services industry. Google must consider the following external factors that contribute to such strong competitive rivalry:

1. Large number of firms in the IT and online services industry (strong force)
2. High diversity of technology firms (strong force)
3. Low switching costs for customers (strong force)

Google’s competitors span various industries, although those that have the most significant impact on the business involve Internet services or related platforms. For example, the company competes against Yahoo (owned by Verizon), Apple, Microsoft, IBM, Comcast, Amazon.com, Snap (Snapchat), Twitter, and Facebook. Also, Google now offers Chromecast, Pixel devices, and other products in addition to Search and advertising services. In the Five Forces analysis model, this diversity of products corresponds to a diverse set of competitors in technology industries and markets. This condition exerts a strong force on Google’s business. Moreover, customers experience low switching costs because it is easy for them to move from Google to other companies. Thus, in this part of the Five Forces analysis, the low switching costs contribute to the strong force of competition against the technology firm.

Bargaining Power of Google’s Buyers/Customers: Weak Force

The bargaining power of buyers weakly influences Google’s business. Considering Porter’s Five Forces analysis model, such a weak external force has limited effect on strategic management decisions in the technology business. The following external factors contribute to the weak bargaining power of customers on Google:

1. Small size of Google’s individual customers (weak force)
2. High and increasing demand from buyers (weak force)
3. Moderate quality of information for customers (moderate force)

With only a small contribution to Google’s revenues, each buyer exerts only a weak force on the company. Because of the high and increasing demand for products from the technology corporation and its competitors, individual buyers exert only minimal influence on the business and the industry. In this Five Forces analysis of Google, the moderate quality of information refers to customers’ knowledge. For example, advertisers access analytics data that are limited in informing about the dynamics and complexity of the online advertising industry environment. The application of Google’s marketing mix or 4Ps helps manage the bargaining power of customers evaluated in this part of the Five Forces analysis.

Bargaining Power of Suppliers: Weak Force

Suppliers’ power is weak against Google. In this Porter’s Five Forces analysis case, such weakness exists especially because there are many suppliers to choose from. The following external factors contribute to the weak effect of suppliers on Google:

1. High availability of supply (weak force)
2. Large population of suppliers (weak force)
3. Small to moderate size of Google’s individual suppliers (weak force)

The high availability of supply in combination with the large population of suppliers weakens the bargaining power of any single supplier against Google’s business. In the Five Forces analysis context, this factor means that it is relatively easy for the technology giant to move from one supplier to another. The online company’s suppliers are diverse because the company has a diverse array of products. These suppliers include computing hardware manufacturers. In addition, many of these suppliers are small compared to Google. Given the weakness of suppliers determined in this Five Forces analysis, the technology company can impose its demands and leverage its business size against suppliers. Google’s corporate social responsibility strategy can help align suppliers’ strategic positioning with the company’s strategic direction.

Threat of Substitutes or Substitution: Moderate Force

Google faces the moderate threat of substitutes or substitution. In this Five Forces analysis case, substitutes include other advertising channels, such as television, radio, and print media, and other technologies that are alternatives to the company’s products. Google’s management must consider the following external factors that contribute to the moderate threat of substitutes/substitution:

1. Moderate switching costs between Google and substitutes (moderate force)
2. Moderate to high availability of substitutes (moderate force)
3. Substitutes’ low to moderate performance-to-price ratio (weak force)

The moderate switching costs make it moderately easy for customers to move from Google’s products, including advertising services, to substitute products. In Porter’s Five Forces analysis model, this factor exerts a moderate force on the technology 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. However, many of these substitutes have relatively low performance-to-price ratio compared to the company’s online services and hardware and software products. For example, in advertising, substitutes like television are effective but more expensive than online advertising campaigns. The business strengths shown in the SWOT analysis of Google LLC counteract the threat of substitution. This part of the Five Forces analysis shows that the identified external factors impose the moderate threat of substitution against the technology company.

Threat of New Entrants or New Entry: Moderate Force

The threat of new entrants (new entry) moderately influences Google’s business. These new entrants include new ventures or investments of large technology companies, as well as startups 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 the technology business and its industry environment:

1. Moderate cost of doing business (moderate force)
2. High cost of brand development (weak force)
3. Firms’ general capability to fulfill regulatory requirements (strong force)

Based on Porter’s Five Forces analysis framework, 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, the capability to satisfy regulatory requirements makes it easy for new entrants to get established and compete in the technology and online services market. However, the cost of brand development is high, resulting in many startup companies’ difficulty in sustaining their operations in the long term, especially because Google already has one of the most valuable brands in the world. Based on this part of the Five Forces analysis, the threat of new entry is a moderate issue in the technology company’s management and strategic growth.

References

• Alphabet, Inc. – Form 10-K.
• Bruce, N. I., Murthi, B. P. S., & Rao, R. C. (2017). A dynamic model for digital advertising: The effects of creative format, message content, and targeting on engagement. Journal of Marketing Research, 54(2), 202-218.
• Dobbs, M. E. (2014). Guidelines for applying Porter’s five forces framework: A set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
• Goldfarb, A. (2014). What is different about online advertising? Review of Industrial Organization, 44(2), 115-129.
• Google LLC – About Google.
• Jacques, J. T., Perry, M., & Kristensson, P. O. (2015). Differentiation of online text-based advertising and the effect on users’ click behavior. Computers in Human Behavior, 50, 535-543.
• Lee, H., Kim, M. S., & Park, Y. (2012). An analytic network process approach to operationalization of five forces model. Applied Mathematical Modelling, 36(4), 1783-1795.
• Schumann, J. H., von Wangenheim, F., & Groene, N. (2014). Targeted online advertising: Using reciprocity appeals to increase acceptance among users of free web services. Journal of Marketing, 78(1), 59-75.
• U.S. Department of Commerce – International Trade Administration – The Software and Information Technology Services Industry in the United States.