Google Five Forces Analysis

Google is the world’s most popular search engine and the top player in digital advertising which takes away the lion’s share each year of global spending on digital ads. It has also become a significant player in social media with its acquisition of YouTube. The company has also grown fast as a leading cloud services platform with a wide range of cloud based service offerings. The company is one of the top three players in the cloud industry.

Google mainly depends on digital advertising for revenue. However, in recent years, its annual net revenue from the other non-advertising services has also grown fast. The search giant is operating in a highly competitive environment where innovation is key to growth. Its competitors are the world’s largest tech firms. Perhaps the single strongest force the company has to deal with in the industry is  the level of competition. However, Google’s dominance in search advertising continues to grow only stronger.

In this Porter’s five forces analysis, we will take a look at Google’s competitive position in the industry and how well the company is positioned against the other players. Porter’s five forces analysis, is an analytical framework that deals with the five important forces affecting a firm’s competitive position in the industry. This analytical framework was created by Michael E Porter and is used to guide strategy and decision making inside firms.

Bargaining power of suppliers: Low

The bargaining power of suppliers in the case of Google is low. The company has focussed on managing higher supplier diversity in recent years and deals with a large number of firms worldwide in its supply chain. Its supply chain includes suppliers of various sizes including big and small firms. 

The company sources hardware products from several other hardware firms. However, being a large technological brand, it has several types of needs that are fulfilled by suppliers of various sizes. Its suppliers are generally much smaller in size compared to Google and therefore do not hold strong bargaining power. 

Moreover, the threat of forward integration from the supplier firms is very low. This also moderates the bargaining power of suppliers. 

Google is a financially strong brand and a dominant player in search advertising as well as some other industry sectors. Its brand image and financial strength strengthen its bargaining power over smaller supplier firms. Overall, the bargaining power of its suppliers is low.

Bargaining power of buyers: Moderate

The bargaining power of buyers in the case of Google is moderate. Its buyers include large and small firms as well as individual consumers like developers. Individual consumers make smaller purchases and therefore do not hold significant bargaining power. The smaller firms that are the buyers of Google’s services in search advertising or cloud industry hold some bargaining power but their bargaining power is also not significant. However, when it comes to the larger firms that contribute significantly to Google’s earnings, they hold moderately high bargaining power as they make large purchases from Google. Whether it is search advertising or cloud services, it is mainly the larger firms spending millions on Google ads or Google Cloud Platform, that hold some bargaining power. 

The bargaining power of buyers gets moderated by several factors including Google’s brand image, its dominant position in search advertising, strong focus on innovation and the wide range of innovative services it offers. In search advertising, it enjoys near monopoly. While increasing competition has given the customers some bargaining power, there are several factors that moderate it. Overall, the buyers hold only moderate bargaining power in the case of Google.

Threat of substitutes: Moderate

The threat of substitute products in the case of Google is moderate overall. While there are several firms offering similar services, Google’s innovative services, its large market share and its dominant market position serve to improve its competitive position and minimize the threat from the substitute products.

In search advertising, the few leading substitutes that exist have fairly smaller market share compared to Google. The only main player that is trailing Google in digital advertising is Facebook and the main threat of substitutes also comes from its online advertising business. However, the threat of substitute products is comparatively high in the cloud industry where 

Google’s rivals offering substitute products are Microsoft and Amazon. Amazon and Microsoft are the two leading players in the cloud industry offering a diverse array of cloud based services for customers of all sizes including large and small firms. Apple also offers a substitute product which is its iOS that competes with Google’s Android.

So, while in some areas, Google faces a strong threat of substitute products, in others, the threat of substitutes is much lower mainly because of Google’s cutting edge technology. Overall, the threat of substitute products is moderate before Google because of its cutting edge technology, innovation, dominant market position and its strong brand image.

Threat of new entrants: Low

The threat of new entrants in the technology sector is fairly low and particularly for the leading players like Google, the threat comes from the incumbent players and not the new entrants. New entrants face several tall barriers to entry in the technology industry. In most of the sectors where Google operates, it is in a strong position. The company is the dominant player in search advertising and a leading player in the cloud industry. 

New players need technological knowhow and financial power to grow faster as a tech brand. In search advertising, Google has remained the dominant player for the past several years. Even the leading players like Microsoft have remained unable to shake its position in search advertising. New players lack the ability to compete with Google because of its innovative search engine and other technologies. Moreover, Google spends billions on the development of new technologies and to continuously improve its existing technologies and services.

All these factors moderate the threat before Google from the new players. Regulatory barriers are also quite high in the tech industry and new entrants face severe regulatory pressure which can become hurdles to their growth. Overall, the threat of new entrants before the tech giant Google is very low.

Threat of competitive rivalry: High

The level of competitive rivalry is particularly very intense in the tech industry.  The leading firms invest a lot in maintaining their market share and dominant position. Most of the competition for Google comes from the leading players including Apple, Amazon, Microsoft and Facebook. However, these are the largest players that invest aggressively in innovation and marketing. Apart from the leading four, there are also many other significant players like Oracle, Intel, CISCO and several more in the market competing with Google.

To some extent, Google’s competitive strength moderates the competitive threat from rivals but since it is pitted against many of the leading and financially strong brands, the competitive pressure is overall intense. Google invests a huge sum in research and development to continuously improve its search engine and search advertising. It also aims to expand its array of cloud based services. The company has also continued to improve its social media platform YouTube to grow its advertising income from the video sharing website.

Google also spends a major sum each on traffic acquisition and marketing. It aims to continuously improve its market dominance in searches while also strengthening its position in the other sectors like cloud sector. 

Apple, Microsoft, Amazon and Facebook are also technologically innovative brands that invest aggressively in research and development as well as marketing. Overall, the intensity of competitive rivalry faced by Google is high.