SWOT Analysis of Google (Alphabet)
Alphabet, the parent company of Google is among the leading players in the technology industry. Its core business is Google but apart from Google, the brand also owns several other businesses many of them unrelated to its core business. Despite being a young brand, it has achieved faster growth which is a result of its focus on innovation. Google is also a leading cloud player. Alphabet’s main source of revenue is its vast online advertising empire. However, new challenges have cropped up before Google which are legal or economic in nature.
To sustain its growth amid high level of competition and a challenging legal environment may be slightly difficult. The brand is financially strong and invests a large sum in research and innovation. It is also trying to diversify into new areas so as to open new channels of revenue and growth. Google search engine is Alphabet’s core strength but its competitive advantage lies in its innovative culture and mission which has always remained its central focus in terms of business. This is a SWOT analysis of Google (Alphabet) highlighting its strengths, weaknesses, opportunities and threats.
Brand recognition and equity:
Brand recognition is a major strength of Alphabet. The level of popularity and brand recognition generated by the google search engine is something that is going to last for decades or rather centuries. Other products by Google like Chrome and Adsense are also popular as well as Google maps and several other products for developers. Overall, Google has become a household name for billions around the world who use one or more of its products on a daily basis. This level of brand recognition is not just difficult to achieve but also an object of jealousy for rivals. Google’s search engine, browser and several other products like its maps are considered highly reliable.
If the brand’s position in the IT industry is unshakable then the reason is the high level of brand equity it has been able to generate. Growing focus on privacy may be a challenge for Google’s advertising business. However, if we carefully look at the larger picture like Apple, Google too may be gearing up for the second phase of its growth. Alphabet has matured now and is readying itself for the next phase of its flight. It has some unique and critical strengths that must not be overlooked in any case and which might help it become another trillion dollar company like Apple much earlier than expected.
Focus on continuous innovation:
Google started as an unconventional brand created for doing things innovative and unconventional. It has continued on the same track since then. Despite being a young company, Alphabet has excelled in various several areas and proved itself matchless. Innovation is an important focus at Google and not just in terms of technology but in several more areas like HR too, it is a leading industry player. Every year Alphabet spends billions on Research and development. It raised its R&D spending from 14 Billion dollars last year to 16.6 Billion dollars. Its R&D expenses are around 15% of its entire revenue which makes it one of the leading spenders on R&D in the entire industry. Apart from that Alphabet owns several patented technologies, trademarks and trade secrets. Between 2013 and 2017, it filed 186 patents alone in healthcare which was higher than those filed by Apple and Microsoft in the same period in healthcare.
Alphabet is financially strong and its net revenue has around doubled in the last five years. From 55.5 Billion dollars in 2013, its revenue has increased to 110.8 Billion dollars in 2017. This is a sharp jump in a small span of time. Net income of the brand however, fell from 19.5 Billion in 2016 to 12.7 Billion dollars in 2017. Advertising is the largest source of revenue for the brand which has increased from 67.4 Billion dollars in 2015 to 95.4 Billion dollars in 2017. Google’s market capital is valued at around 750 Billion dollars.
Alphabet’s global presence is also a major strength of the brand. Its
Leading position in the IT industry:
Alphabet is a leading brand in the information technology industry. It has brought several market leading products from the smartest search engine to browser as well as advertising platform Adsense. Adsense apart from being the largest ad platform is also the leading source of revenue for the brand. Google’s dominant position in the web world has also been a sore in the eye for several competitors and government agencies. It had to face several major legal tussles in this area for trying to dominate the web world and the online advertising landscape. However, Google’s formidable position in these areas has helped it face these challenges with might. This also proves that you cannot overlook the power of technology.
Weak position in the cellphone industry:
Alphabet entered the smartphone industry with its Pixel phones. However, its position in this industry is very weak because of relatively higher popularity of the other brands like Samsung, Apple, Xiaomi, Huawei, Oppo etc. These are the brands ruling the smartphone industry and the market share of Alphabet is comparatively very small. The brand is spending a fortune on the promotion of its product but competition will continue to make its task difficult.
Comparatively lagging in clouds:
In the cloud industry, Google has not been able to take the lead position which is currently held by Amazon, IBM and salesforce.com. Google is continuously focussed on innovation to move ahead in the cloud industry. However, the challenge from the leading players has made the game quite tough.
Privacy and Legal issues:
Growing privacy concerns has led to higher legal scrutiny and legal action against large and leading players like Google. EU has taken the strictest action and applied fines as well as strict laws to avoid misuse of user data by Google or Facebook. This has made the online advertising game challenging because Alphabet depends upon user data to offer advertisements and advertising services.
Dependence on key markets:
Alphabet depends highly on some key markets for a major part of its income. This makes it vulnerable to the economic and legal changes taking place in its market environment. United States is its largest market which pays for nearly half of its revenue.
Dependence on Ad income:
Online advertising is the largest source of income for Alphabet. It accounts fir nearly 90% of the brand’s revenue. However, the brand must build new channels of revenue as well so that it can reduce its dependence on just one source of income.
Diversifying into new areas of technology and business can help the brand find faster growth. While Alphabet has already invested in new areas of technology, this field holds greta potential and being in a financially strong position it can invest in new areas for faster growth.
Growth through acquisitions:-
Alphabet can acquire other businesses to find faster growth. Smaller businesses that can help strengthen the brand’s core business can ensure quicker growth for the brand.
Innovation in AI and cloud business:-
AI and cloud business are the future of the IT industry and Alphabet must continue to invest in these areas so as to find stronger growth. While innovation is a core focus of Alphabet, it must try to strengthen its position in the cloud industry.
The threat from competition in the IT industry has grown over the recent years. Alphabet has several competitors including Microsoft, Facebook, Yahoo, Apple and so on. This leads to higher pressure related to innovation and higher expenditure on both research and development as well as marketing and sales.
Legal & Regulatory pressures:-
Legal and regulatory pressures in the IT industry have also grown manifold. Privacy concerns and other issues have made the pressure on the brands in this industry grow. EU has applied stringent measures that prevent large businesses from misusing user data and intruding into their privacy. According to news sources EU slapped more than 5 Billion dollars in fine upon Alphabet over Android antitrust issues. the legal and government environment has kept heating up. Overall, this is one of the most troubling challenges faced by large technology companies like Alphabet.
High expenses of R&D as well as marketing and sales:-
Rising competition and other factors have led to brands aggressively pushing the line of innovation. Alphabet too spends heavily on research and development and is among the top spenders in the industry. Its R& D expenditure rose past 16 Billion dollars in 2017.
Alphabet is an innovative brand without any doubt and has built up some formidable strengths over its lifetime. Its search engine is still at the core of its business model but the brand is rising to other challenges as well. It has invested in several other ares too and many of them have started yielding results. It is important that Alphabet does not remain dependent solely on advertising revenue for income and explores new areas. It also needs to make its position in the clouds stronger as the cloud battle is heating up. US is its main market accounting for the largest part of its revenue. Governments have been highly aggressive recently while dealing with technology brands resulting in Alphabet paying higher attention to its legal issues. It is difficult to say if future is going to be less tumultuous for the brand. Still, attractive growth over the last five years proves that Alphabet might be more difficult to shake than its competitors or any government imagines. The reason is that to steal its competitive advantage is impossible.
Sources:Alphabet Annual Report 2017