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INTRODUCTION

Background
While enrolled as graduate students at Stanford University, Larry Page and Sergey Brin founded one of today’s most influential and innovative companies, Google, Inc. Starting from their dorm room in 1998, to now world headquarters at the Googleplex in Mountain View, California, the company has stayed true to its mission: “to organize the world’s information and make it universally accessible and useful” (Quick 1).
In 2001 Dr. Eric Schmidt was hired as Google’s CEO. He served as CEO of Novell and CTO at Sun Microsystems prior to joining the company. Larry and Sergey agreed Eric’s educational background, a Ph. D. in computer science, and business experience would benefit the company. Since Eric’s arrival, Google has been run as a triumvirate, with all three men collaboratively making decisions (Scmidt 29).
Google is now a public and profitable company. Its focus remains on search services but continued innovations, acquisitions, and partnerships have broadened the company’s horizons.

Problem
Google has become a serious threat to Microsoft Corporation’s thirty-year dominance of the computer technology industry. “Each new day for Google seems to bring a clever new feature, a promising new business opportunity, and a potent new threat to any company that stands in its way” (Lashinsky 223). Microsoft and other leading companies are now forced to be more innovative in an attempt to keep pace with Google’s recent surge.
Purpose
The purpose of this report is to investigate the recent innovations, partnerships and acquisitions by Google, Inc. The focus will be on their technological advancements and new products released. This report will also examine the effects of Google’s success on Microsoft Corporation, and the counter-actions being taken by Microsoft.

Scope
In this report the ever-changing computer technology industry is explored through the innovations and breakthrough technologies produced by Google. Specifically limited to the effects on their competitors and the general public.

DISCUSSION
Technological Breakthroughs and Continued Innovation
Idea Generation

Google grew into a competitive force in the technology industry years before going public. After opening the Googleplex in 1999, the unique company evolved rapidly. Larry and Sergey created a working atmosphere that encouraged employees to openly share ideas for new products and technologies. At Google, ideas are exchanged through an “ideas mailing list”, which distributes mass e-mails across the company with every new post. A variety of products, including Gmail, have resulted from this form of brainstorming (Hardy 198).


Search Services

A constant goal of Google has been to develop convenient ways to access the world’s information. They have established themselves as the #1 search engine worldwide and are used by over 380 million people per month (Quick 2). Their dominance is due in large part to the accessibility of their databases.


The Google Toolbar, introduced in late 2000, is an innovative plug-in made for web browsers. It allows users to make a search without visiting the Google homepage. The program can be accessed by a search box on the web browser toolbar or by right-clicking highlighted text within a web page (Google Milestones 5). Allowing users to perform queries without visiting their website has provided Google with an enormous advantage over the other leading search engines.
Partnerships with leading wireless communication companies lead to the introduction of Google SMS in October of 2004. The technology enables people who are away from their computers to make instant queries through the use of a cell phone and other handheld devices (Google Milestones 9). This was one of the first advancements made since going public in April 2004.
Google’s domination of search services has continued to grow since the creation of the company. Acquisitions of database management software and partnerships with brands, such as Yahoo!, have played a key role in their expansion. These actions will be discussed in greater detail later in this report.
Advertising

After establishing the top search engine on the web, Google began to earn profits through advertising. Their first advancement came with the introduction of AdWords, a self-service ad program that enables advertisers to target specific audiences through the use of keywords. When a web user searches for a particular product, advertisements are then listed based on their relevance to the users search. Google uses the “cost-per-click” pricing model, which charges advertisers only when their ad is clicked. This model makes search based advertising cost-effective for both small and large businesses (Google Milestones 7). Other leading search engines, including Yahoo! and Microsoft’s MSN, have since introduced similar technologies.


Figure 1 - Adwords

Source:


In 2003, Google developed the AdSense program. AdSense offers website publishers a way to generate revenue through the placement of highly targeted ads. The program automatically delivers the most useful text and image ads to the publisher’s page. (Google Milestones 8) This innovation provides websites with a convenient way to earn more revenue with no extra costs.

Figure 2 - AdSense


Source:


Finding an effective way to place relevant information before the eyes of the consumer has proven to be the most successful form of advertisement to date. Advancements in advertising established the foundation for making Google a highly profitable company. Using their ability to organize information, they were able to maximize profits for other companies and web sites. With the majority of the company’s revenue coming from advertising sales (Schmidt 6), Google has been able to offer users other services for little or no charge.
Business Technology

Google has also begun to leave its mark on the databases of small and large companies across the world. Helping to organize and make information easily accessible and useful is a continuing goal of Google. Using their information organizing technology, they created programs enabling businesses to better manage and retrieve their own information.


In 2005 small businesses were presented with the Google Mini (Krol 26). The product is a hardware and software combination that allows small businesses to search their documents and websites in the same fashion as Google’s web search (Google Milestones 10). The Google Mini offers the business world a product that can specifically help individual businesses, and their employees, store and retrieve company information with greater ease.
Overview

The technologies, programs, and innovations mentioned in this section have played an important role in the growth of Google, Inc. The constant flow of information, and unique ways of idea generation, help maintain continued success for the company. Providing easy access to search engines, capitalizing on relevant advertising, and aiding small businesses in information organization are key breakthroughs in establishing Google as a serious threat to competitors, specifically Microsoft.



Expansion and Further Development
Google’s rapid growth is a result of many partnerships and acquisitions. With more money to spend, Google is quickly buying out smaller companies and implementing their cutting edge technologies. In addition, partnerships have expanded their customer base and allow Google to access even more of the world’s information.
Key Partnerships

Wireless communication companies and leading international search portals have been Google’s most beneficial partnerships. Agreements with Sprint PCS, Cingular, and AT&T enable thousands of wireless Internet users to benefit from the aforementioned Google SMS technology. Partnerships with China’s NetEase and Japan’s NEC BIGLOBE portals have expanded Google’s market to an international level, offering search capabilities to a global audience (Google Milestones 9).



Key Acquisitions

Keyhole Corporation, a digital and satellite image mapping company, was acquired by Google in 2000. Keyhole’s technology has since spawned Google Earth, a program allowing users to view 3D images across earth and access an extensive database of roads, businesses, and other points of interest (Google Milestones 9).


Google also bought out a local digital photo management company called Picasa, Inc. Their technology has been used in creating a program to help users organize, manage, and share their digital photos (Google Milestones 9).
These acquisitions have broadened Google’s corporate horizons. Obtaining and implementing the technologies created by Keyhole Corporation and Picasa, Inc. has expanded their market, increased their threat to Microsoft, and helped to continue their path towards dominance over the Web.

The Effects on Microsoft and Their Counter Actions
Microsoft’s Dominance

Microsoft was founded in 1975, and has since developed into the most influential and dominant force in the computer technology industry. Over the past 30 years Microsoft has expanded to over 60,000 offices and employees in more than 60 countries (Microsoft Homepage). Their dominance is a result of the Windows operating system, which is installed on all PC’s. Windows has provided Microsoft with control of what products and services users see first. With the desktop being the focus of users in the past, this control has been their avenue to success (Vogelstein).


Microsoft is still the industry giant. Fortune Magazine reports that Microsoft is worth nearly $40 billion in revenues, ten times the size of Google. They have $34 billion in cash, and are generating $1 billion in new cash a month. With the help of products--such as Windows, Office and product servers--Microsoft is continuing to show 15 percent growth each year, with operating margins above 30 percent (Vogelstein). Since 2003 however, Bill Gates and other Microsoft executives have considered Google a serious threat to their dominance over PC users.

Google’s Threat to Microsoft

By establishing itself as more than just a successful search engine, Google has become an increased threat to Microsoft. Their Desktop Search software, used to search users desktops and the Internet, challenges Microsoft’s ability to control what products and services PC users are exposed to first (Google Milestones 9, Vogelstein). Since this has been the key to Microsoft’s success in the past, it may prove to be the Achilles’ heel in taking down the software giant.


Another key advantage for Google is the revenue earned through advertising sales. This enables them to offer search, e-mail (Gmail), photo management (Piscasa, Inc.) and other tools free of charge. Through Google’s free Blogger software, users can now produce and print documents without the use of Microsoft Office (Vogelstein). These developments, coupled with the hiring of talented software engineers, is expected to spark the development of a cheap and effective Google Office software package, overtaking Microsoft Office as the market’s standard.
One of the greatest threats to Microsoft is that Google has become the “it” place of employment for innovative software engineers. Google is not only hiring the best engineers entering the workforce, they have also started to lure away many Microsoft employees. Google’s most notable acquisition came in 2005 with the hiring of Dr. Kai Fu-Lee, one of Microsoft’s former Vice Presidents. In addition, Google employs Marc Lucovsky, a chief architect of Windows, and roughly 100 other past Microsoft employees (Vogelstein).
Since going public Google expanded more than anyone at Microsoft ever imagined. Partnerships and acquisitions have rooted their technology in countries worldwide. Consequently, their stock price has risen consistently since it’s initial offering and is now valued at more than $400 per share. Microsoft’s stock has remained steady in the past year, as shown in comparison with Google in the charts below:
Figure 3 – GOOG Stock Price for 2005 Figure 4 – MSFT Stock Price for 2005

Source (Figure 3 & 4):


Google is prepared to take the reigns held tightly by Microsoft for almost three decades. Advertising revenue, Internet and desktop search technology, free office tools, new partnerships and acquisitions, and recently going public have all contributed to Google’s ever growing threat to the dominance of Microsoft Corporation.
Microsoft’s Answer

Microsoft still believes they have the tools to lead the computer and Internet industry. However, the impending threat from Google has created a sense of urgency like never before. Bill Gates and other top executives are pushing for the emergence of more innovative ideas to help them stay competitive. In a recent memo Microsoft’s chief technology officer Ray Ozzie expressed the company’s concern pushed for new developments. He stated, “It’s clear that if we fail to do so, our business as we know it is at risk. We must respond quickly and decisively” (Guth).


Microsoft has already created an answer to Google’s AdWord technology. Their most recent competitive venture is code-named Project Underdog. Microsoft is spending more than $100 million on an 18-month project to build a search engine to compete with Google. Software architects are attempting to create a style of searching more advanced than any other product on the market. The process has been unsuccessful thus far, taking longer, and costing more money than originally expected. (Vogelstein)
Recent news has shown Microsoft and Google both showing a strong interest in taking stake in the AOL business. Internet executives believe that Microsoft will outbid competitors in an attempt to gain some control of the Web market. This will be an important move for Microsoft as the computer world shifts from the desktop to the Web (The Stakes). If Microsoft wishes to stay competitive, greater access to Web users, an audience dominated by Google.
In the past Microsoft has been a fast follower. They are rarely the first to introduce a product to market, but have always quickly provided a more accessible and practical solution. This tactic has helped in outlasting competitors such as Netscape, Lotus, Star Office and others. (Vogelstein) Microsoft is attempting, and believe they can, do the same in their race with Google.
Overview

Microsoft’s dominance of the computer industry has not been challenged in thirty years. With users focus’ shifting from the desktop to the Web, Google has established itself as a legitimate threat. Key advantages for Google lie in their innovative web and computer search technology, and their ability to offer competitive products for less. The completion of Project Underdog and a controlling stake in AOL will greatly benefit Microsoft in their attempt to counter Google’s rise to the top of the industry.




CONCLUSION
By founding Google, Inc., Larry Page and Sergey Brin turned themselves into corporate icons. Incredible technological advancements have been made during their mission “to organize the world’s information and make it universally accessible and useful.” Innovations like AdWord, AdSense, the Google Toolbar, and Google Desktop search have catapulted Google, Inc. to worldwide success and drastically changed the shape of the computer technology industry.
Microsoft is now faced with their toughest competition in thirty years of existence. New ideas and projects, such as Project Underdog, are being examined as Bill Gates and other top executives are taking action to lead Microsoft in countering Google’s surge.
It is still unknown what the outcome of the race will be, but all computer users should find excitement in what this newfound competition could bring. The battle for control rages on with both sides pushing for more innovative ways to improve the technological aspect of our lives. I believe, with close competition, we will see the emergence of fantastic new technologies from both Google and Microsoft in the years to come.

REFERENCES
“Company Information.” Microsoft Homepage 1 December 2005 .

“Google Milestones.” Google Homepage. 27 November 2005



.

Guth, Robert A. “Microsoft Revamp For Online Push Gains Urgency.” Wall Street Journal 9 Nov. 2005: A3.

Hardy, Quinten. “Google Thinks Small.” Forbes 14 Nov. 2005: 198.

Krol, Carol. “Google.” B to B Magazine. 24 Oct. 2005: 26.

Lashinsky, Adam. “Google Vs. The World.” Fortune 14 Nov. 2005: 223.

“Quick Profile.” Google Homepage. 27 November 2005



.

Schmidt, Eric. “Amendment No. 9 to Form S-1 Registration Statement: Google Inc.”. Securities and Exchange Commission. 27 Nov. 2005

edgar/data/1288776/000119312504142742/ds1a.htm>.

“The Stakes in the Fight for AOL.” Business Week Online 7 Nov. 2005

.businessweek.com/technology/content/nov2005/tc20051107_822080.htm>.

Vogelstein, Fred. “Gates Vs. Google.” Fortune 18 Apr. 2005.








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