Tuesday, May 25, 2010
Google's growth Secret
2 Stanford University graduates – Larry Page and Sergey Brin in 1997, started Google in a garage. Google’s phenomenal growth in the last 13 years is one impressive story. In 2009, Google posted revenues of USD23 Billion with office locations in 43 countries and 20000 employees across the Globe. Google processed 760 Billion searches in 2009 and owes over 150 domains. Its performance has clearly made it the web industry leader with competitors nowhere close. Many wonder how did Google grow so rapidly and why industry biggies such as Yahoo, Microsoft and others couldn’t catch up with it.
How Google differentiated itself from its rivals was by adapting a combination of Razor Blade Strategy and acquisition strategy. Its acquisition strategy was to acquire companies in related industry verticals. In the last decade, it has acquired several technology companies of different sizes. Youtube, DoubleClick, Picasa are a few examples. These acquisitions brought in inorganic growth in the form of new technologies and user base.
At the same time, Google used the razor blade strategy to optimal use. Now, what is razor blade strategy? It’s the same strategy used by Gillette & mobile operators to subsidize the initial instrument (razors, cellular phones) expenses for the users and then make money from the blades or the mobile subscription charges. This strategy was also successfully implemented by Kodak and computer printer manufacturers also where they subsidized cameras and printers to capitalize on sales of photo films and printer cartridges.
What is Google’s razor in this case? It is Internet and Google’s list of free-to-use technologically innovative products. By offering free products and thus, providing an useful and productive Internet environment, it has dramatically multiplied Internet users and hence its client base. Internet has grown by a CAGR of 38.6% in the last 14 years, while Google’s revenues have grown by a CAGR of 120.1% in the last 9 years. Google is setting the tempo for the next wave of growth by following its customer needs. At present, Google is putting a major thrust on mobile web with its Android based mobile operating systems and mobile enabled search engines. I spoke to a senior Google employee who shared the underlying corporate philosophy of the company. She said “Google is an idea and customer driven company more than anything else. We never focus on profits but rather dedicate ourselves in bringing an unique and beneficial customer experience. Sales and profits will automatically follow”. The company actively seeks customer feedback to improve its product experience. The company understands its customers and listens to them. Such high levels of customer focus for free services is unimaginable. No wonder the company enjoys terrific levels of loyalty and is ranked 7th most valuable brand by Interbrand in 2009.
At any time, Google Labs (company’s new product development showcase) will have atleast ten products in its pipeline. Google employees are encouraged to make mistakes and try new ideas. Employee performance is evaluated by their innovations. Only 2-3 of Google’s 120 products are profitable. It’s unimaginable for a public company to operate in this manner. Google is an example of how a company grows by building a unique culture of customer experience and technical expertise.