Transcript Google`s Business Model

The Business Model and Strategy of
MBAA 609
R. Nakatsu
Framework for Discussion
What is Google’s business model?
 How do search engines work?
 What differentiates Google’s search engine
from the competition?
 What is Google’s advertising revenue model?

– AdWords (text, keyword-based advertising)
– AdSense (affiliate program)
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Is Google a sustaining or disruptive
technology?
Google’s Business Model
Pure Play vs. Clicks-and-Mortar
 Dominant Revenue Model
 Commerce Strategy
 Pricing Model
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How Do Search Engines Work?
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A spider visits a web page, reads it, and
then follows links to other pages within the
site. The spider returns to the web site
periodically to look for changes (dynamically
updated)
 The index contains information about every
web page a spider finds.
 The search engine itself processes the
human (user) query and sifts through the
millions of pages recorded in the index.
How Search Engines Rank Web Pages
Search engines use some kind of algorithm to
determine relevancy.
For Example:
 Pages with keywords appearing in the title
are more relevant
 Keywords that appear near the top of a web
page (e.g., the first few paragraphs of text)
 How often keywords (frequency) can also be
used as a measurement of relevancy.
Other Ranking Criteria

Meta tags allow the owner of a page to
specify keywords and concepts under which
the page will be indexed.
 Human editors sometimes can give a web
page a higher relevancy rating.
Question for discussion: What are problems
with these ranking criteria?
How Google is Different from its
Competitors

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Spartan, bare-bones interface
Text-only ads
Unbiased search results via PageRank
Earns most of its revenues from advertising
Today, more expanded offerings
How does Google’s PageRank work?

The frequency and location of keywords in a web
page.
 How long the web page has existed.
 Link popularity: the number of other web
pages that link to the page. Also, linked pages
with a higher page rank count more in the
relevancy score.
Of these three factors, link popularity is the most
important.
Google Advertising
“The world’s most valuable online advertising
agency disguised as a search engine.” --The
Economist
How does Google Advertising
(AdWords) Work?

Google uses a cost-per-click (CPC) model
 Google uses an auction-based system
 Google also uses a quality score to determine
ad placement
 Google leverages the long tail of the Web
through customer self-service
Google AdSense

AdSense gives content providers a
mechanism via which they could add
advertising space to their websites.
 Content providers hire Google to manage the
placement of relevant ads on their webpages.
 Every ad clicked on generates revenues for
both Google and the content subscriber.
The Ads are labeled:
Ads by Google.
Questions for Discussion

Is Google a sustaining or disruptive
technology?
 Can you think of a problem with Google
advertising?
 What type of search engine might supplant
Google in the future?