ISOM 2010:
E-Commerce: Google Case
Yanzhen Chen
Hong Kong University of Science and Technology
>>Learning Objectives
1.Understand the extent of Google’s rapid rise
and its size and influence when compared
with others in the media industry.
2.Recognize the shift away from traditional
advertising media to Internet advertising.
3.Gain insight into the uniqueness and appeal of
Google’s corporate culture.
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Introduction
Google’s “trick” is matchmaking—pairing Internet surfers with
advertisers and taking a cut along the way.
– 80 percent of Alphabet’s nearly $181 billion in 2020
revenue came from advertising.
– Advertising drives profits and lets the firm offer most of its
services for free.
Free services have propelled the firm into a wide-ranging,
multifront war that includes:
– Mobile, browsers, cloud infrastructure, e-mail, office apps,
social media, maps, e-commerce, payments, and more.
Voted as one of the best firms to work for in America.
Alphabet
• Google has evolved into Alphabet, a diverse holding company investing in
a wide-ranging array of potentially high-impact endeavors.
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Google VALUE
Google’s market capitalization
(market cap) makes it most valuable media
company on the planet
– Market capitalization (market cap):
Firm value = share price X number of shares
Number of shares
http://investor.google.com/financial/tables.html
Stock price, market cap
http://finance.yahoo.com/q/ks?s=GOOG+Key+Statistics
Most Valuable Global Brands 2006?
Google ranked 24th in 2006
Apple ranked 49th 6
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…and in 2023?
Google = Miracle
• Founded Sep.4, 1998
• IPO Aug.19, 2004
• Market Cap now:
$1.223 Trillion (3/7/2023)
• Larry Page & Sergey Brin , each
with $111 B/107 B as of Mar, 2023
(#6/#7 in Forbes Billionaire List,2023)
Mission: “to organize the world's
information and make it universally
accessible and useful”
(unofficial) Motto: Don’t be evil
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Worldwide Search Market Share (Volume of Searches,
February 2021)
Google dominates, but with Chat GPT, Bing has a moment (2-digits)!
Global Ad Spend by Media (in $US Billions)
More is spent on
Internet ads than
any other form of
advertising, and
this is expected to
rise for the
foreseeable future.
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Internet Ad Spend
Internet ad
spending is
on the rise
Paid search Paid Search
dominates
Internet ad
spending
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>>Learning Objectives
1.Understand the mechanics of search,
including how Google indexes the Web and
ranks its organic search results.
2.Examine the infrastructure that powers Google
and how its scale and complexity offer key
competitive advantages.
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Understanding Search
Query: Search
Organic or natural search: Results returned and
ranked by relevance
Search engines use different algorithms
to determine order of organic search results; Google
method PageRank
– PageRank: Algorithm developed by Google
cofounder Larry Page to rank Web sites
– A site with more pages linking to them
are ranked higher
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How Google Search Works
http://www.youtube.com/watch?v=BNHR6IQJGZs 14
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Understanding Search—Key Terms (cont’d)
spiders, Web crawlers, software
robots: Traverse available websites
to perform a given task. Search
engines use spiders to discover
documents for indexing and retrieval.
cached: Temporary storage space
used to speed computing tasks.
deep Web: Internet content that
cannot be indexed by search
engines.
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How Does Google Work?
It doesn’t search the web. It
searches a database
“Spiders” crawl the Web,
reading Web pages and
reporting back to Google’s
databases
You can also submit your site to
search engine for indexing
Site information is read
Search terms are matched from the Web site by spiders
against the database using a
proprietary algorithm
This requires a whole bunch of servers in many server farms! 16
An estimated 1.4 million as of 2008
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What’s It Take to Run This Thing?
Google runs eight services that each support over a billion
active customers a day, and has sixteen global servers: A
massive network of computer servers running software to
coordinate their collective use.
Google’s server setup is fault-tolerant: Capable of continuing
operation even if a component fails.
colos (colocation facilities): Warehouse-sized facilities
where telecom companies come together to exchange traffic.
– Helps make the Internet function as a network of networks.
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>>Learning Objectives
1.Understand Google’s search advertising
revenue model.
2.Know the factors that determine the display
and ranking of advertisements appearing on
Google’s search results pages.
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Search: “Used Toyotas”
Natural
Local
SponsoredPageRank
Organic
Links AdsResults
Results
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Natural and Sponsored Ads
Web sites that naturally rank high using Google’s
algorithm are displayed free in the main section
Sponsored ads appear in top and right boxes;
these advertisers pay
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Topping the list
SEO: Search Engine Optimization
– The process of improving a page’s organic search
results
Critical for an organization to be at the top of the
search results!
Can we fool PageRank with fake site links?
– This is call link fraud
– Google actively works to find and shut down these
types of efforts
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Search Advertising
search engine marketing (SEM):
Designing, running and optimizing search-
engine ad campaigns.
keyword advertising: Advertisements
targeted based on a user’s query.
– Advertisers bid on keywords and
phrases used to trigger the display of
their ad.
Linking advertising to purchasing intent
makes Google’s ads highly valuable.
pay-per-click (PPC): Advertisers do not
pay unless someone clicks.
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Search Advertising (cont’d)
Google developed a precise ad ranking formula that rewards top
performing ads by considering certain metrics.
– Maximum CPC (cost-per-click) an advertiser is willing to pay
– Advertisement’s quality score: A broad measure of ad performance
– Ad formats
– Formula: Ad Rank = f (bid value a.k.a. Maximum CPC an advertiser is
willing to pay, Quality Score, expected impact of extensions and
formats)
Factors determining an ad’s quality score:
– click-through rate (CTR): Number of users who clicked an ad divided
by the number of times the ad was delivered.
– Overall history of click performance for the keywords linked to the ad.
– Relevance of an ad’s text to the user’s query.
– Automated assessment of the user experience on the landing page:
Web page displayed when a user clicks on an ad.
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Search Advertising (cont’d)
Google provides tools to identify popular words and phrases for
selecting keywords to associate with an ad, and for assessing ad
quality score.
Offers dynamic search ads: Ads generated automatically based on
the content of a website.
Advertisers get a running total of ad performance statistics that helps:
– Monitor the return on their investment.
– Tweak promotional efforts for better results.
This whole system is automated for self-service—all it takes is a credit
card and an ad idea, and you’re ready to go.
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Payment Methods
Cost per click (CPC): Advertiser pays
each time a Web site visitor clicks on an ad
– Google charges this way
Cost per thousand (CPM): Advertiser pays
for every thousand times an ad is displayed
– Magazine advertising paid for this way
Cost per action (CPA): Advertiser pays each
time a person does something (sale, lead, etc.)
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From Fixed Price To Auction
Advertisers specify the maximum CPC they are willing to pay
The rank of ads based on both maximum CPC and the quality of
advertisers’ web pages
Rule: Actually pay just one cent more than the second highest bid
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Top 20 Most Expensive Keywords
1. Insurance 9. Hosting
(“auto insurance price quotes”) 10. Claim
2. Loans 11. Conference Call
(“consolidate student loans”) 12. Trading
3. Mortgage 13. Software
(“refinanced second mortgages”) 14. Recovery
4. Attorney 15. Transfer
(“personal injury attorney”) 16. Gas/Electricity
5. Credit 17. Classes
(“home equity line of credit”) 18. Rehab
6. Lawyer 19. Treatment
7. Donate 20. Cord Blood
8. Degree
“[No surprise,]…the most expensive keyword categories is clearly
a result from people who, en masse, turn to the Web in search for help, whether
it’s for financial, educational, professional services or medical aid.”
Robin Wauters, Tech Crunch
http://techcrunch.com/2011/07/18/most-expensive-google-adwords-keywords/ 27
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Mobile Apps and the Challenge for Google Search
Mobile users spend an estimated 86 percent of their time in apps and
only 14 percent on the Web.
Context-specific apps draw users away from Google’s Web search.
– Kayak and TripAdvisor for travel
– Shazam for music
– Amazon for shopping
App owners are becoming even more useful advertisers with the rise
of deep linking: A link that takes a user to a specific webpage, or
launches an app and brings up a unique location rather than just
launching the app.
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Three Drivers Behind Increased Online
Ad Spending
1. Increasing user time
online
2. Improved measurement
& accountability
3. Targeting
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Trackability
Unlike magazines
and TV, Internet
ads can be
tracked instantly
Online tools
allow advertisers
to calculate ROI,
test creativity, Take a tour of Google Analytics!
http://www.google.com/analytics/tour.html
and adjust ads
almost instantly
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