Posted in Marketing & Strategy Articles, Total Reads: 4760
, Published on 17 February 2014
Moving towards Google’s Mission: To organize the world’s information and make it universally accessible and useful
Google has a made a lot of news recently owing to what we can call a speedy & timely march towards enabling a more connected world. This should not surprise us from the left, right, top or bottom since the company has always given power to the users. The internet giant has recently concluded deal with home automation company, Nest, which makes smart thermostats & smoke detectors, for $ 3.2 Billion. Also concluded, has been the acquisition drill for DeepMind for $500 million, which specializes in: cutting edge AI”. These two are Google’s 20th & 21st acquisitions so far in past one year.
The graphic below shows some recent acquisitions:
Missing from this list is the Quantum Artificial Intelligence Lab, that Google has launched in partnership with NASA and a number of universities, to assess the potential of quantum computers and quantum algorithms. The Google Glass & Google Contact Lens are other two hot offerings from Google. During the course of its 14 year history, Google has at least completed half century of acquisitions, some of which can be found here . A simple observation will confirm the business strategy that Google has followed: acquiring young companies which are attractive (at least most of them) in business (es) of information (connectivity, mobility and analytics, social & digital platforms and integrate them so as to reach more human beings & systems. As obvious, a major chunk of Google’s revenues come from advertising and services (network & web services).
But looking at recent developments in “mobility, information & communication” industry, over-reliance on downstream focus, emergence & intense competition from niche entrants, evolution of markets & premature near death experiences (blackberry) of some big players (or the prophecy of same – about facebook’s demise) have forced a sudden rethink about corporate strategies. While Nokia almost fainted, Blackberry is still in ICU, still hoping to recover from big blow. Apple has also seen some turbulence & has already opted for defensive stance by deciding to take hold of hardware business to great extent. The main reason for Microsoft for buying Nokia is supposedly the same: upstream focus. This goes against the relatively new & popular belief that suggests shifting of competitive advantage outside the firm & that now it resides in the market, closer to customer. As the industries gradually matured after the industrial revolution, firms necessarily started searching for a more “durable competitive advantage” out there in the open – in the market & the upstream activities dropped on their priority lists. This is true for most industries where firms have devoted themselves to this new belief. This is what has happened in the automobile industry & once you read what Tesla Motors CEO, Elon Musk is doing to counter this belief, you will realize the importance of upstream focus to move towards today’s center-stage.
The logic is simple: For providing downstream value, one necessarily needs a predecessor value created upstream. Some basic reasoning will make it crisp to savor:
- Where will Microsoft run its operating systems & software if people stop buying desktops & laptops & how will it differentiate? What forced it to enter Tablet market? What prompted it to introduce X Box?
- Where will Apple’s iOS find a refuge if it continues to stay an IPR company in a market increasingly flooded with fakes & dummies?
- What will automobile companies sell once people stop buying fossil fuel driven cars?
- Why did Google buy Motorola Mobility just to sell it off later & move on? Why did it trouble itself to launch Mobility devices, Google Glass & Contact Lens and jump its’ wall to enter wearable gear segment when it already has so much to earn from network that it itself has pioneered in?
- What has led to once the market bosses’ - Blackberry’s & Nokia’s current condition?
- Is the prophecy about Facebook likely to manifest in reality?
And the list is rather long if we bring in more industries. For software companies, unless they have hardware / devices to run their software products, how would they be able to create value? Similarly, unless automobile makers have compatible how will they justify their relevance in the market place?
Understanding trends is so crucial & integrating them into one’s corporate strategy in upstream is even more crucial & demanding provided the current pace of markets – thanks to the information revolution that virtually started off with Google search which became a proxy for web search !
Through recent acquisitions & strategy, Google is trying to champion the Internet of things to touch the lives of millions, through “connected things” and making internet not only omnipresent (Google’s Project Loon) but also vital. Though all this comes with its own baggage of concerns, but this is the only way forward and we are likely to become things of internet in time not too distant.
The Dual Competitive Advantage and Focused Diversification
We all have been, for so long, associated with the belief that there can be only one advantage to compete and that it erodes with time as industry makes progression into more matured stages. A more recent version also started to take it into the open, closer to the customer where it is clearly visible to competition & hence more vulnerable to expedited erosion. But doesn’t that sound like a foolish strategy to rely solely upon something that everyone knows & imitation is inevitable? Rather, one should give a thought to competing from a dual front – One internal & the Other External. Though it is not very difficult to understand the two individually, integrating them is what is usually traded off in a quest to either being agile or innovative or responsible or even myopic (here Blackberry stands as a testimony).
Google, from a strategic perspective, is trying to strike the same balance: Innovating & Expanding its traditional web & internet services (downstream competitive advantage) while making appropriate investments in building its capabilities upstream (through current acquisitions, projects & alliances). This will ensure that the Google’s value pipeline keeps feeding the customers as & when required, thereby creating an advantage not only to vouch for but equally difficult to replicate. If Google continues pursuing this strategy, it is likely that more companies & capabilities will be acquired, majority of which will come from physical mobility technologies, advanced military technologies, virtual reality & gesture sensing technologies and so on, which will enable Google to run its show on its own stage, unlike others who are likely to continue the bloody battles within the circles of their industries, only to consolidate or get demolished later.
But Does it Make Business Sense?
Intuitively speaking, it does make sense because there has been a growing need for human race to stay connected in the wake of higher uncertainty & risk to life owing to natural catastrophes, insurgencies, world trade, economic over-dependence, competition for natural resources, changing patterns of need gratification, shifting cultural bases etc. which determine: Who, What, How do people seek information. The more avenues Google can find for “keeping in touch & remaining close-by” with the users of its services, the more it is likely to get the benefits of network efficiencies. The same has been translated by International Data Corporation (IDC) in its recent findings & estimates which the Internet of Things & the technology ecosystems surrounding it are collectively expected to be worth $ 8.9 trillion by 2020. According to IDC’s estimates, the installed base of connected things will be approximately 220 billion, by 2020. The Internet of Things technologies & services spending was pegged at $ 4.8 trillion in 2012 by IDC which is likely to achieve the 2020 estimate at a compound annual growth rate of 7.9 percent. The growth is expected to come from smart cities, cars and houses provided the industry adapts & develops appropriate & adequate infrastructure, while crossing various hurdles such as lack of standards, scalability, young ecosystem & an ignorant user base, & simultaneously enticing the users out of current clutter limited largely to mobile computing by making them aware of the possibilities all the way along.
Google has always been a first mover & is equipped with the knowhow of exploiting the associated synergies & meeting customer expectations from its technology solutions. This big leap though not disruptive, poses a tough question on how technology & business strategy will evolve in the future to come – Will the consumer stay the king or technology will enable business to intrude further into the layers of social life? Will existing rules of business command credibility in near future as the world becomes a more evolved, a more open & a more connected space? And yes who will win at the end next end of the track- the consumer or the king?
This article has been authored by Anirudh Vats from International Management Institute
Dawar Niraj, When Marketing is Strategy, Harvard Business Review South Asia, December 2013