Introduction
The term market structure is used to encompass a range of tightly interconnected characteristics of a given market, such as the quantity and relative strength of consumers, producers and suppliers, an extent of collusion and its forms, level and dominant forms of competition, ease of entering the market and exiting it, as well as a degree of product differentiation. For the purposes of current assignment market structures and strategies of gaining competitive advantage under different market structures will be studied by the example of Google, Inc.
Google, Inc. is a U.S-based multinational enterprise that operates in a range of directions, including service engine, cloud and advertizing technologies. In 2007, the enterprise was estimated to possess more than one million data servers around the globe. Google Search Engine is the most widely used in the world, and particularly the company’s operation in the search engine industry will be considered below.
Market structures for Google, Inc.
Google, Inc. is a leader in the world search engine industry. The industry is rapidly developing thanks to continuous improvement of innovative technologies, and its annual growth rate accounts for 6.2 per cent (IbisWorld, 2015). The two major properties of the industry that determine the market structure are as follows. Firstly, users pay zero for using search engines. Consequently, the profits are generated with the help of online advertisements. Secondly, users may use more than one search engine during one session, determining difficulties in estimating the popularity of search engines (Telang et al, 2004, p. 139). Despite the fact that consumers pay zero for using search engines, they are strong actors in the industry, because the popularity of search engine determines its success in terms of online advertizing. The industry includes hundreds of companies. However, only a number of them are widely known as providing quality search mechanisms (e.g., Google, Yandex, Yahoo, Groupon etc.). Providers in the industry are highly dependent on ever changing consumer preferences. There is also a high risk of obsolescence, if a competitor manages to create an innovative technology, capable of attracting significant number of consumers and, thus, advertisers.
Thus, there is an intense competition within an industry, where companies continuously invest in R&D and brand development to sustain their positions. Collusions tend not to take place. Instead mergers and acquisitions are frequently encountered. The entry and exit costs are low, so it is easy to both enter the search engine market and exist it. As the market is rapidly developing, there are a lot of niches and opportunities for new entrants and creative approaches.
Both vertical (product positioning and horizontal (product differentiation via higher quality) differentiation strategies are used by search engine companies. While some entrants start their search engine businesses from low- and medium-quality products, they gradually improve and end up with products, capable of sustaining the competition.
The market structure, described above, is conditioned by the peculiarities of search engine industry. Easiness of entering the market, strong link to new technologies and the availability of various niches and opportunities for new entrants are major factors that determine the peculiarities of market structure within a search engine industry. The market structure model that exists within a search engine industry can be addressed as monopolistic competition. Monopolistic competition is the one, most frequently encountered at the real-life markets, is a kind of imperfect competition, whereby many producers tend to sell products, differentiating them from one another with the help of divergent means.
Under monopolistic competition market structure, Google experiences rather intense competition, and continuously needs to invest into research, development and introduction of new technologies in order to sustain its market share and increase competitive advantage. If a company was a monopoly, there would be no other supplier of a similar good, and it would be able to set prices within the whole industry. Under monopoly Google would be profit maximizer, price-maker, and other companies would not be able to enter the market. In case of oligopoly several enterprises dominate the market, deciding upon prices and not letting other entities enter the market. While under monopoly Google would face no competition, it will have to put efforts to sustain its market share under oligopoly.
The situation of perfect competition means that all entities, operating at the market are too small to be able to influence prices. If Google appeared in such situation, it would face competition of an extent, significantly exceeding the one, caused by monopolistic competition.
As search engine industry is rapidly developing and characterized by rather intense competition, Google is in need of strategies that will help the company sustain market share in a long run. In this regard, it is important for Google to emphasize quality differentiation and invest into research and development. While Google operates not only a search engine, but a variety of related services, it can popularize its search engine even by improving related services and introducing new ones.
One of prospective directions of change for Google is investing into the augmented reality technologies and making them available to as many users as possible. Augmented reality technologies can become a highly valuable investment for Google in terms of their further use as advertizing platforms and means to increase consumers’ interest to Google search engine.
Secondly, Google needs to promote its brand in order to achieve long-term sustainable advantage. Brand promotion is an essential element of marketing mix, and it is important for Google to conduct brand promotion activities, aiming to increase brand loyalty. Contests among consumers, customer appreciation events and branded promotional gifts are the means Google can use to increase popularity of the company and recognizability of the brand. In this regard, it is important for Google to inform its consumers about its achievements in the field of new technologies, including augmented reality.
Thirdly, Google need to sustain and enhance its HR policy, aiming to recruit talents, capable of producing creative ideas. Furthermore, Google’s reputation as one of the world’s best employers helps it sustain talented employees, attract new ones and be viewed as a “good company” by consumers.
The use of the above strategies is not likely to exert significant impact upon supply and demand. In case Google invests into augmented reality and becomes world’s leader in this field, it can happen that the number of Google search engine consumers will also increase. At the same time, the supply is not likely to be influenced, as established search engines (e.g., Yahoo or Yandex) will still be used, and are highly unlikely to exit the market due to their scale and current popularity.
The market structure itself is not likely to change significantly (e.g, change to monopoly or oligopoly). However, such statement is conditioned not by an ineffective nature of the proposed strategies in a given market, but the peculiarities of the business itself. Rapid development of new technologies, growth of search engine businesses, availability of niches and opportunities for new entrants make it almost impossible to monopolize the market. At the same time, it is important to understand that the above strategies are elaborated not to change the market structure, but to help Google to sustain its market share and gain competitive advantage. Using quality differentiation (investments into research and development, new technologies) and brand positioning, Google will be able not only to survive monopolistic competition, but preserve its current position as the world’s leading search engine.
The government regulations are not likely to change due to the implementation of the above strategies by Google. However, the development of new technologies and an increase in their use (e.g., augmented reality) will doubtlessly require the development and adoption of new legislative acts, governing the use of these technologies and providing for sanctions stemming from the breaches of adopted rules. Importantly, even today virtual reality is already addressed as a “legal danger” in relation to consumer rights protection in the USA (Johnson, 2015).
The above strategies can help Google maximize its profits. However, the use of augmented reality can have significant ethical implications, such as its desensitization and an emergence of virtual criminality (Virtual Reality Site, 2015). If the use of augmented reality is strictly governed and consumers’ rights are protected, its use to maximize Google profits aligns with the company’s values. Under this condition the use of augmented reality, as well as other strategies, proposed in the paper, align with my personal values, such as individual rights’ protection, honesty and transparency.
Conclusion
Google is the world’s leader in search engine industry, operating under monopolistic competition. Sustaining its position requires emphasis on new technologies, concerned with ensuring individual rights’ protection.
References
Johnson, E. (2015). Legal danger: what we do not know about virtual reality today might hurt companies tomorrow. Retrieved 18 January 2015 from http://recode.net/2015/08/11/legal-danger-what-we-dont-know-about-virtual-reality-today-might-hurt-companies-tomorrow/
Telang, R., Rajan, U., Mukhopadhyay, T. (2004). The market structure for Internet search engines. Journal of Management Information Systems, 21(2), pp.137-160
Virtual Reality Site (2015). VR and ethical issues. Retrieved 18 January 2015 from http://www.vrs.org.uk/virtual-reality/ethical-issues.html
