IS711 Assigment #1 v3

Mark Beaumont MD

January 12, 2022

 

 

The headline in a recent Bloomberg article says, “Alphabet Sales Top Analyst Estimates Calming Growth Concerns”. Alphabet, the parent company for Google, utilizes network effects best compared to the other major companies that dominate the consumer technology industry. Google maximizes the power of network effects driving the success of their technological platforms. They accomplish this dominance by demonstrating continued sales growth in existing markets, investing in research and innovation for new strategic markets, and mastering the use of two-sided network effects with Google products.

A network effect is any situation where every new user joining a service provides value to all the existing users. Positive network effects have benefited Google with company shares jumping the most in four years after they reported revenue that exceeded Wall Street expectations in July 2019. Bloomberg reported second-quarter sales of $31.7 B, capital expenditures of $6.9 B, up 30%, and net income of $9.95 B, up 17% from last year. This revenue is primarily from web searches and online advertising. Current Google platforms have been successful, one being AdWords which touches many of Google’s web properties. Recommended websites when logged on to Gmail, YouTube, and other Google sites are generated through this platform creating connections and value for users. Google and its users benefit through the use of cloud computing businesses such as Google Play, an online music service, Google Wallet, Chromebooks, Android, the Google Cloud Platform, and Google +, an integrated social network.

Google also exhibits network externality and competitive advantage by investing in innovative technology that benefits users. Some projects include experimenting with different ad formats such as advertising on its Maps properties, cloud computing innovation, voice-controlled digital assistants, and driverless cars. Other projects include Google Glass, a brand of smart glasses, Google Allo, an app designed to compete with Facebook’s Messenger and WhatsApp, investments in Uber and solar power, and mobile phone operating system development. Google also started projects that use artificial intelligence, drones, health technology, and immersive virtual-reality worlds to benefit users.

Google not only increases the value of its users, but they also generate value from additional users. This positive feedback relationship, in business, is called a two-sided network effect. An example of this is when Google Android app developers attract customers and customers attract app developers. Google strategically scales its efforts taking advantage of technological improvements on the demand side driven by their efficiencies in social networks, demand aggregation, and app development. Google utilizes demand economies of scale to promote frictionless growth while minimizing most negative network effects through the creation of high-quality products.  

As a company, Google is transforming the economy. They promote value expansion through technological and financial growth, an ongoing fortification in its existing web market which includes advertising, searches, and cloud infrastructure, and their ability to incorporate and implement strategies to fend off competition and rebound from losses.

 

References

https://www.forbes.com/sites/startupnationcentral/2018/03/18/why-a-network-effect-is-the-only-way-your-startup-can-win/#32d004f37527  

 

https://medium.com/@nfx/the-network-effects-manual-13-different-network-effects-and-counting-a3e07b23017d 

 

https://martechtoday.com/google-posts-31-1b-in-total-revenue-beats-top-and-bottom-line-expectations-214433 

 

https://www.investopedia.com/articles/investing/020515/business-google.asp  

 

https://www.cnn.com/interactive/2018/12/business/google-history-timeline/index.html  

 

https://interestingengineering.com/5-technology-trends-to-watch-in-2019

 

https://www.bloomberg.com/news/articles/2019-07-25/alphabet-sales-top-analysts-estimates-calming-growth-concerns

 

Wikipedia: Network Effects

 

Excerpts from “The Platform Revolution” (Questrom Tools) — Chapter 2: Network Effects

Assignment #1: Digital Transformation and the Big Five (Due Sept 16) Decide which of the big 5 tech companies described in the article “Tech ‘Frightful 5’ Will Dominate Digital Life for the Foreseeable Future” takes most and best advantage of what’s referred to as “network effects”. Your paper should address one company and defend its position of dominance ahead of the others in terms of network effects.

Here are references that may help:

Wikipedia: Network Effects

“The Platform Revolution” – An Interview with Geoffrey Parker and Marshall Van Alstyne  https://www.youtube.com/watch?v=jfd3k4VUYh4 

Excerpts from “The Platform Revolution” (Questrom Tools) — Chapter 2: Network Effects

 

When Google CEO Larry Page created a new holding company called Alphabet in 2015, initiatives such as self-driving cars and health tech got divvied up into new companies, and Google became an Alphabet division with a sharper focus on internet services and software. Today’s Google, now led by CEO Sundar Pichai, still dominates web search and online advertising sales. It has the most widely used mobile operating system (Android) and web browser (Chrome). Other venerable offerings, such as YouTube, Gmail, and Google Maps, continue to be the 800-pound gorillas of their respective categories.

For all the areas where Google is a leader, there are plenty of other markets it covets. In 2016, it centralized its hardware operations and launched its most ambitious lineup of devices to date, including the Pixel phone, Google Home smart speakerDaydream View VR headset, and Google Wi-Fi wireless-networking system. It also introduced Google Allo, a communications app designed to compete with Facebook’s Messenger and WhatsApp. And it gave its enterprise group a new name—Google Cloud—and redoubled its effort to turn that suite of tools into a formidable rival to Amazon Web Services.

Google’s nascent Tango project aims to measure physical space without the need for GPS or other external signals, putting all the technology inside a mobile device such as a phone or tablet. Tango enables positional augmented reality in any kind of space—such as your living room—in a way that’s never been possible before. The implications could be huge–augmented reality apps that allow users to easily see what a room would be like with or without furniture, for example. For now, there aren’t many devices incorporating Tango, but they’re coming. The first Tango phone, the Lenovo Phab 2, was launched in November 2016.

These projects may look far-flung as if Google wants to compete with everybody. But the overarching idea is to tie everything together via the company’s areas of expertise—particularly in artificial intelligence, which powers the new Alexa-like Google Assistant service. It’s a take on ecosystem-building designed to revitalize Google’s original mission: organizing the world’s information and making it universally accessible and useful.