Strategic Management: Google Business Model


1. Explain Google's business model.

2. Examine the financial reports in the case to determine the company's profitability, liquidity, leverage, and activity ratios. Based on these ratios, what is your assessment of the company's performance? Justify your answer.

3. Preform a SWOT (strengths, weaknesses, opportunities, and threats) analysis of Google.

4. Describe Google's value chain. What is the source of the company's competitive advantage?


Google’s Business Model

As per the case study, Google has four branches in its current business model that cater to various target audiences. Mentioned below are the four areas of the Google business model:
Google Search Appliance
It is the where all the search activity within the Google takes place. Through various specialized search facilities, Google allows its various users – such as small and big businesses, and online users – search the internet or intranet without any hassle. Various businesses can take license from Google to use its search functionality for their own internal system or on their website at meager $100 a year price (Gamble, 2012). 
Google AdWords
AdWords from Google allows the advertisers – small and big businesses – to post personalized ads to their target audience (Gamble, 2012). The advertisers can even take assistance from Google team to create effective ads. Google helps users track the effectiveness of each ad. There is various combination of AdWords package for different group of advertisers, big and small. The prices of ads are decided through online auction where advertisers bid on keywords.

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Google AdSense
It is where various content creators earn revenue by displaying the Ads from Google on their websites and pages. Google does not charge any membership fee for the program and anyone with appreciable traffic on their site can join in this program to earn decent revenue (Gamble, 2012).
Other Revenue Sources
Other revenue sources of Google includes YouTube channel where ads displayed on videos earn Google much revenue. The company posts banner ads on the videos where users click as per their interest and ad revenue drops into Google’s pocket. Google Checkout and Google Apps are other sources of decent revenue (Gamble, 2012).
Financial Report Analysis
Mentioned below are the analyses of the Google’s financial statement based on various metrics. These metrics will state the level of profitability this business holds and how much liquid it is along with other important analysis. All the analysis done for the year 2011.


Profitability Ratios
Return on Assets (%) = (Net income/total assets) x100 = 9737/[(72,574+57,851)/2] x100= 14.93% for the year 2011.
Profit Margin (%) = (Net Income / Revenues) x 100 = 9737/13188 x100 = 73.83%
Liquidity Ratio
Current Ratio = Current Assets/Current Liabilities = 72,574/52,758 = 0.23 for the year 2011 (greater liability)
Leverage Ratio
Debt to Equity Ratio = 58,145/5,516 = 10.54
Activity Ratio
Receivables Turnover = Revenue/Account Receivable = 5,427/37,905 = 3
Average Accounts Receivable Turnover Ratio = 365/3 = 121

Google’s Performance

Profitability ratios suggest that the company has good return on assets and profit margin is appreciable. Liquidity ratio is lower than one which suggests that the company has lower margin of safety. Debt to Equity Ratio suggests that the company has taken little debt and, therefore, as per the data, it is a low risk company. High Average Accounts Receivable Turnover Ratio suggests that the company is operating mostly on cash and collection of accounts receivable is efficient. Moreover, the company has the appreciable quality customers who pay the entire amount on time. It is more conservative towards the credit. The analysis above presents the better picture of Google as per the financial standings are concerned.

SWOT Analysis

Mentioned below are the strengths, weaknesses, opportunities, and threats of the company that allows understanding the areas where the company is strong and the areas those still need some improvements to grow ahead in the market.
It has good presence on the web through its multiple business activities (Gamble, 2012). It is the globally recognized brand and is financially sound with enough funds in the backyard. Its revenue model is good and currently almost unbeatable due its indomitable presence on the online platform (Miller, 2012).
It is mostly seen as Search Engine Company and other form of services are needed to be pushed by the company to the consumers (Gamble, 2012). 
Expansion on social media sites and integrating the android capabilities can help it grow further. Expansion and mobile search and smartphone platform can be the opportunities along with other products such as Google glass and others (Miller, 2012).
Competition from other companies is coming as threat for Google. Pressure to achieve revenue and earnings growth from shareholders has pushed the Google to move beyond its core competency which may allow competitor to play with the company.

Google’s Value Chain

Value chain helps in understanding the activities those can create the value for the company and competitive advantage. Mentioned below are the various areas of the value chain network of Google Sutherland, 2011):
Inbound Logistics: The inbound activities are related to submission of the invoice by the suppliers which get processed at the next stage of invoice status checking. Moreover, it includes various other administrative aspects of the company. 
Operations: There are more than 70 offices of the company in almost 40 countries around the world. The organizational structure of the Google is similar everywhere which focus on adopting unconventional methods to complete the tasks.
Outbound Logistics: Search functionalities, technological products – such as SmartWatches, Nexus and Google Glass – and other products available on the online store of Google. The year 2015 saw the opening of a physical Google store in London.
Marketing and Sales: It focus on integrating the online and offline communication channels effectively.
Service: It has great customer service facility that focus on dealing with almost all the queries of the customers through online or via telephonic communication.
The source of competitive advantage of Google is its presence on the online channel with its search functionality and human resource (Sutherland, 2011).

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  • Gamble, J. (2012). Google's Strategy in 2012.

  • Miller, M. (2012). Google+. Emeryville, Calif.: McGraw-Hill/Osborne.

  • Sutherland, A. (2011). Google. London: Wayland.

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