MBA50

Prepared for:
Professor William

Prepared by: Section MBA S15N72

Marufa Tabassum 576 884 803
Shabbir Ahmed Khan 576 884 837
Adetola Tolulope Atobatele 576 976 732
Omote Ukueku 577 170 731
Darek Juzwiak 577 087 828
Samuel Diei 577 090 749

Executive Summary
Google Inc is an American company founded in 1998. The product line for Google is vast. The
strategic moves of Google are well justified. They come up with new innovating products at the
right time. Google hold a big percent of the market share in the industry. The broad product
category are web, mobile, business media, geo, specialized search, home & office, social and
innovation. The market value of Google Inc as of 2014 is USD 33.3 Billion. Google utilizes
perfectly the concepts of economies of scope and economies of scale. The demand linkage is
well maintained by Google. It introduces a new product as soon as the marginal product of the
product is equal to the marginal cost of that product. Google faces challenge in the supply of
high skill labor. As the supply is less the cost of labor is very high. But as recommended if
Google does global recruitment and extensive employer branding then this challenge can be
somewhat manageable. It can lastly reduced it cost by focusing more on virtual business.

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Table of Contents
Contents
Introduction
Size and Scope
Economies of Scope
Economies of Scale
Strategic Moves
Demand Linkage
Market Share
Supply of Labor
Recommendation
References

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Page Number
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Introduction
Google was founded in 1998 by Larry Page and Sergey Brin in US.
Google introduced Gmail in 2004 which included features like
speedy search, huge amounts of storage and threaded
messages. In 2004 Initial Public Offering took place. Google
acquired digital mapping company Keyhole in 2004, and launched Google Maps and Google
Earth in 2005. Today Maps also features live traffic, transit directions and street-level imagery,
and Earth lets you explore the ocean and the moon. In 2006, Google acquired online video
sharing site YouTube. In 2007 Google launched Androidan open platform for mobile devices.
In 2008 Google Chrome was launched and in 2011 the Google+ was launched. In 2013-2014
Google hit the market with Google glass and Google watch. Google's strategic moves are very
successful and hold a significant market share.

Size and Scope

Net Worth of Google Inc. in 2014 is USD 33.3 Billion. Google has a wide product line. The
product lines can be broadly segmented under web, mobile, business media, geo, specialized
search, home & office, social and innovation.

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Economies of Scope
Google reduces the unit cost by producing multiple interrelated goods/services jointly rather than
separately. The concept of economies of scope is closely related to economies of scale. Google's
scale of operation increases as it has expanded the product lines very strategically. This gives
them competitive advantage both in cost and market share. The figure shows the cost advantage
of Google due to economies of scope. The short run average cost (SRAC) curve decreases as the
product line increases. Previously it was at SRAC 1 it shifted downward to SRAC 2.

Economies of Scale
Google has an expanded scale of operation which causes the total fixed cost tp spread. The
diversified portfolio with related products cause the average foxed cost (AFC) to go down.
Experience curve also reduces cost of production as the development of new processes and
engineering methods increases productivity. Google has 16 years of operational experience
which is a competitive advantage for Google in terms of productivity and thus Google's average
variable cost

(AVC) is lower compared to previous years. Google has managed to take

advantage of this concept through a number of ways;

Lower input costs: Through bulk purchases of both hardware and software related to the
production of the goods and services it offers, Google has taken advantage of volume discounts
and buys raw computer parts in massive quantities and assembles custom servers with fewer
unnecessary components, thereby creating super servers that can process massive amounts of
data efficiently and at lower costs with fewer unutilized parts.

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Costly inputs: Some inputs, such as research and development, managerial and entrepreneurial
expertise, and skilled labour are expensive, but because of the possibility of increased efficiency
with such inputs, they lead to a decrease in the average cost of production and sales. Google
achieves this through the acquisition of firms involved in businesses/technologies it is interested
in. Google has acquired to date a 176 companies that form an integral part of its business, this
also means it has eliminated a 176 potential competitors. E.g. Motorola, Daily Deal, YouTube,
etc.
Specialized inputs: As Googles scale of production increases, it has also acquired and employed
the use of specialized labor and machinery leading to an increase in its efficiency.
Techniques and Organizational inputs: With a large scale of production, Google has also been
able to apply better organizational skills to its resources while improving its techniques for
production and distribution. Examples of this are clear cut chains of command, more divisions
and sub-divisions in the company and improved business processes.
Learning inputs: The learning process related to production, sales and distribution of goods and
services have resulted in improved efficiency, Practice makes perfect.
In essence, even though production activities have increased, average fixed costs and average
variable costs per unit has gone down. This means Googles marginal cost and average total cost
have also reduced. Thus, Google's increase in output with the diversified product ranges
decreases the average cost. As shown in the figure, previously the production costs were much
higher. But due to economies of scale there is a decrease in average variable cost which
decreased the marginal cost and the average total cost causing a downward shift of the cost
curves.

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Strategic Moves
Google strategies are well conceptualized. They are risk takers,
innovators and they launch the new product in the right time. By introducing
Google glass Google has proved themselves as the ultimate risk takers and has also proven
themselves one of the best innovators of the industry. But as Google glass failed, they didn't
delay to take a new strategic move to counter the loss. Google has introduced Google Watch in
2014 and they took the Google glass out of market in 2015. Thus it is evident that Google Inc
strategic moves are well justified.

Demand Linkage

Google constantly coming up with new ideas and new products

at the right time, when they are estimating Marginal product of
one product equals to Marginal cost of that product. Demand of
input is derived from demand of their output. Figure shows the
various years in which Google launched new products, E.g.
Search engines in 1998, Gmail in 2004, Android in 2007 and
Google + in 2011. Google is Constantly coming up with new
product when they are estimating MP=MC which is a shield
against diseconomies of scale and thus not experiencing negative marginal return.

Market Share
Search Engine: Google holds a staggering 66.40 percent of the U.S. search engine market
share (tying their own record, which was set in January of this year) meanwhile, Microsoft
search engine internet explorer continued to grow at Yahoo's expense. Internet explorer is
strongly holding onto second place with 13.80 percent of search queries, up.

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Browser: Googles popular Chrome browser was overtaken by Mozillas equivalent Firefox,
and gained over 20% market share for the first time. Firefox is the third most popular internet
browser, behind Microsofts Internet Explorer. Chrome at a much larger 45% market share.
Webmail: Around the world, Yahoo and Gmail are competing for similar markets. Gmail has
40 percent of the market share among all other webmail services followed by Hotmail being
23 percent and Yahoo 21 percent.
Social: Google is in second place in the market share with a participation of 33%, the major
player in social login preferences is Facebook with 45 percent.
Smartphone: Looking at the market share of Smartphone platforms we can see that Google
(with android system) is the dominant product with 52% of the total market share. Apple is
placed in second with 39% of the market share.
Google Watch: Google is always proactive in order to launch new products. An example of
this is the Google Watch.
Google Glass: An example of an unsuccessful product from Google is the Google Glass.
Google created this product expecting to achieve what the technological watch market is
achieving now. Since they are innovators all their products are always a risk. The important
thing for a company is to know when to realize that they are having a profit loss so they can
revert situation or take the product out of the market and avoid further losses. It is impossible
to hit a home run all the time (Launch incredible products), but usually the risk for this
companies pay off since if they hit a home run their profit will skyrocket.

Supply of Labor
Q = F(K,L)
In short-run K is constant, L is variable, K stands for capital and L for Labor. Google's supply
of skilled labor is less and thus their cost of labor is high which makes Google's short run
average variable cost to be high. There are huge demand of high skilled labor in the industry
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Google is operating which is making the labor market very costly. This is causing the
production cost of Google to go up.

Recommendations
Google should do global recruitment & employer branding so that there is increase in the
supply of skilled labor. Google can also reduce their cost by closing down some of the
businesses in similar regions and adopting the virtual business method. They have now more
than three offices in each country with a distance of 3-5 hours so Google can cut down few
offices and manage those regions virtually. This will reduce both their average total cost.

The impact of our recommendation will help reduce the production costs for Google by
reducing the average variable cost, marginal cost and average fixed cost and average total
cost. The overall downward shift of the cost curves depicts the concepts in the figure above.

References
About Google. (n.d.). Retrieved March 22, 2015, from https://www.google.ca/about/
Baye, M., & Prince, J. (2000). Managerial economics & business strategy (8th ed., p. 168).
Boston: Irwin/McGraw-Hill.

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Ibisworld.com,. (2015). Webmail Providers in the US Market Research | IBISWorld. Retrieved

20 March 2015, from http://www.ibisworld.com/industry/webmail-providers.html
Keat, P., & Young, P. (2000). Managerial economics: Economic tools for today's decision
makers (3rd ed.). Upper Saddle River, N.J.: Prentice Hall.
Miller, R. (2015). Google loses marketshare in latest comScore stats, but Microsoft unchanged.
FierceContentManagement.

Retrieved

20

March

2015,

from

http://www.fiercecontentmanagement.com/story/google-loses-marketshare-latest-comscore-statsmicrosoft-unchanged/2013-12-17
Molla, R. (2012). Gmail finally beats Hotmail, according to third-party data [chart].
Gigaom.com. Retrieved 20 March 2015, from https://gigaom.com/2012/10/31/gmail-finallybeats-hotmail-according-to-third-party-data-chart/

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