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Alphabet Inc / Google : company profile

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In the space of just a few short years, Google knocked Microsoft off its throne to become arguably the world's most powerful - possibly the most feared - technology company with involvement in a vast array of different areas. Its main challenger for that title is Facebook, but for now it remains comfortably ahead. The company describes its mission as "to develop services that significantly improve the lives of as many people as possible". To that end it has built upon its core offering to spin out a kaleidoscope of additional services, ranging from global mapping and Android mobile software to healthcare research and driverless cars. Uniquely, for now at least, virtually all its add-ons are free to use, paid for by the awe-inspiring success of the company's advertising programme. Google may not be the world's biggest online company by revenues (that's still Amazon) but it's the most valuable by far with a market value of over $460bn by mid 2015. Yet Google's position at the top of the digital advertising tree is under threat from an even faster-growing business, Facebook. At the same time, its steps into hardware development have so far been patchy. In 2011, the group took steps to monetise Android by acquiring one of its first licensors, US handset manufacturer Motorola. Less than two years later, though, it sold that business on to Lenovo of China after failing to boost performance. Its Google Glass computer-powered eyewear also failed to find a ready audience. In 2015, the group announced plans to restructure, splitting out its more fanciful research-based operations as separate units under the umbrella of new parent company Alphabet Inc.

Advertising

Click here for Adbrands Account Assignments. Alphabet declared advertising and promotional expenses of $3.87bn in 2016.

Brand Value

Interbrand's Best Global Brands survey ranked Google as the world's #2 brand in 2016 (behind Apple), with an estimated brand value of $133bn. However, Millward Brown's Brandz survey ranked Google as the world's #1 brand, with an estimated value of $229.2bn. Both surveys use different measurement criteria.

Competitors

See Media Sector for other companies

Brands & Activities

Virtually everyone who uses the internet uses Google. The company offers its main interface in almost 120 different languages (including some, such as "Swedish Chef", that don't actually exist). It also offers tools to render an instant translation of foreign websites in most major tongues. Despite the presence of longer established online brands, not least Yahoo and Microsoft's MSN and other services, Google's dominance of the online search environment trmains complete. It reigns supreme as the internet's most extensive search index, cataloguing literally trillions of pages. The company's search services are powered by vast farms of servers in several countries which work together to create what is in effect a huge supercomputer, able to transfer capacity from one site to another depending on demand.

As a result, despite significant further investment in both technology and marketing by its rivals, Google still delivers search results which are more relevant than those provided by its principal rivals. Global market share has slipped as a result of the rise of Baidu in China (where Google is effectively subject to a government ban) and Yandex in Russia. In Feb 2015 it was a little over 58%, down from around 90% in 2010. However it remains unassailable in the US with around 64% share of all search (compared to under 20% for Microsoft and 13% for Yahoo). Its penetration is even higher in other markets, between 80% and 90% in most European and Latin American countries.

The company has continued to strengthen its search offering through acquisitions that offer a wider range of consumer information. In 2010, for example, it paid $700m for ITA Software, a company which develops technology used by airlines to to maximise the yield from sales of seats and manage passenger reservations, as well as an internet ticket booking engine. That forms the basis for a Google Flight Search service. In 2011, it boosted its local services search offering with the acquisition of restaurant guide Zagat for a rumoured $151m. This was followed briefly by the Frommer's travel guidebook brand, which it acquired in 2012. Neither diversification took hold, though. Frommer's was sold back to founder Arthur Frommer a year later in 2013; Zagat to restaurant review rival The Infatuation in 2018.

Yet the real breakthrough for Google has been the skill with which it has monetized this search technology. Pay-per-click search results were invented by other companies (notably GoTo.com, now part of Yahoo), but this was little more than a niche service until it was adopted and revitalised by Google in 2002. The company's AdWords programme, in which sponsored listings are triggered by pre-selected keywords, now dominates search-based advertising, while the accompanying AdSense service, which allows other websites to offer context-relevant ads from Google's inventory, massively expands its effective network.

In 2007, Google began to expand its offering from text-based ads to more traditional display banners by trumping Microsoft's negotiations to acquire ad serving firm DoubleClick with a staggering bid of $3.1bn, around 50% higher than the $2bn being sought by the seller, investment firm Hellman & Friedman. That deal came under investigation by monopoly regulators but it was approved by the US Federal Trade Commission at the end of 2007 and by the European Union in 2008. The final deal price was $3.24bn, reflecting the change in DoubleClick's share price between announcement and completion.

Although the Google network comprises thousands of individual smaller publishers, its most important constituents are major online service providers who have chosen to sub-contract their search offering. Until recently, the most significant of these was AOL, which had been a key strategic partner to Google since 2006, when Google acquired a 5% shareholding in the online giant for $1bn. AOL accounted for 7% of Google's combined revenues in 2006, or around $750m. However, the search group later wrote off much of the value of its AOL holding, and notified Time Warner of its intention to divest them. Also in 2006, the group agreed a partnership with News Corporation's Fox Interactive Media division, whose web brands then included MySpace, to be the exclusive provider of search-based advertising. Google guaranteed Fox a total of $900m in revenue share between 2007 and 2010. Like the AOL deal this didn't perform up to expectations, with rumours that Google was making substantial losses on its guarantees.

In 2008, Google signed off on a new benchmark deal which seemed promised to further cement its dominance. Microsoft's attempt to acquire Yahoo effectively pushed that portal into agreeing a defensive alliance with Google instead. Under the terms of a new ten-year arrangement, Yahoo offered to include a selection of paid Google ads as well as its own and other third-party ads when delivering search results to customers in the US and Canada. Google and Yahoo said that no regulatory investigation would be necessary, since this was a commercial arrangement similar to that by which Toyota provides hybrid engines to General Motors or Canon sells OEM laser-printers to HP. However, large advertisers and government regulators disagreed, expressing their concerns over an effective monopoly by Google. After several months of negotiations with the US Department of Justice, Google walked away from the deal in November 2008.

Google has also sought to adapt its online advertising sales programmes for other media. The company's first moves were into radio through the acquisition of broker dMarc, and later into newspaper adspace. In 2007, Google made its first move into television, agreeing to act as a advertising broker for direct satellite broadcaster Dish Network. Later it set up a specialised unit, Google Creative Labs, which is responsible for developing new advertising formats and ideas to offer to its own customers, and also took charge of the company's own marketing. First results from the brokerage services were said to be encouraging, although Google had difficulty attracting business from mediaowners, who feared the company's rapid growth. It was also badly damaged by the decline in newspaper advertising during 2008, and the group finally took the decision to suspend first its print service and then the radio version as well in early 2009. Later that year, however, it paid $750m in stock to acquire AdMob, the US market leader in advertising targeting mobile handsets. The group added further to its online advertising offer with the acquisition in 2011 of optimisation service Admeld for $390m. That company provides software which allows publishers to manage their ad inventory more effectively and profitably through managed real-time bidding.

The rapid take-up of its advertising services has caused Google's revenues to sky-rocket, soaring from just $439,000 in 2002 to a spectacular $36.5bn by 2011. (Staff numbers have also rocketed, from just 2,300 in 2002 to almost 33,000 by December 2011). Combined with a spectacularly successful IPO in 2002, this gave Google the base to move into virtually any and every other technological environment which tickled the fancy of its founders. So far, all of these additional software services have been offered free of charge. Some of these add-ons have been purely educational, such as the awe-inspiring Google Earth global mapping project. However this project formed the bedrock for what is now one of the world's most sophisticated mapping and GPS services, in which virtually all medium and major urban centres worldwide are available to view at ground level through Street View. Google GPS direction service is rapidly becoming a global standard, and the group continues to strengthen it through strategic acquisitions, such as the social traffic mapping service Waze, acquired in 2013 for a rumoured $1bn.

The Google Books project was at first also essentially educational, setting out to offer a searchable online repository of printed information. Yet it was greeted with dismay by many publishers, who feared the long-term implications of the service on copyright ownership. In 2008, Google agreed to pay $125m to settle numerous copyright infringement lawsuits, and came up with an alternative system under which publishers could opt to have their books removed. That promised to provide the platform for an important new revenue stream both for Google and for publishers. However, the US Justice Department objected to the new proposal because it would give Google an unfair advantage over "orphaned" works where the copyright owner couldn't be identified. It was eventually blocked by a US court in Spring 2011. Another new service under development aims to be a centralised repository of digitised personal health records, which can then be accessed as needed by patients, doctors and health insurers. Among other advantages this will patients to take control of their own records if they change doctors or insurance provider.

Other Google services are more deliberately commercial in nature, even if as yet they generate no revenue. The company has sought, for example, to replicate commercial services such as website traffic analysis (Google Analytics) and photo management (Picasa). Google's most significant expansion has been into office productivity software such as email (Gmail), scheduling (Google Calendar), and above all word processing and spreadsheet management, where it has positioned itself as a direct competitor to Microsoft's Office suite. The original Google Docs productivity suite was relaunched in 2012 with additional cloud storage space as Google Drive. In 2008 it launched a direct competitor to Microsoft's Internet Explorer web browser under the name Google Chrome, now the clear market leader used by around 50% of the global web audience. In the most direct challenge so far to Microsoft's business model, it launched its own open source computer operating system based on Chrome in 2011, but that has failed to gain much ground.

The group also moved into a number of other service areas. In 2007, it established a strategic alliance with Salesforce.com, an online customer relationship management service, and acquired email security developer Postini for $625m. A move into social networking with the Orkut service was generally underwhelming (except in Brazil, the sole market in which Orkut proved a big hit with users), and it was eventually shuttered in 2014. The company has tried several times to relaunch its social media offering, most recently with Google+ in 2011. However, that too has enjoyed only limited success, and rumours began to emerge in 2015 that Google was considering the closure of that service also.

Google's biggest diversification to-date - and also arguably its most successful - has been into online video, with the acquisition of video sharing service YouTube for an astonishing $1.2bn. YouTube has arguably achieved the same ubiquity within the online community as its parent, but it adds comparatively little to the group financially. A 2015 report in the WSJ estimated YouTube to be still little better than break-even on revenues which rose by around a third in 2014 to $4bn (roughly 6% of Google's total revenues). At first YouTube threatened to be more of a liability than an asset by making potential enemies of several mediaowners. The same copyrights issue which accompanied the move into books proved even more valid here, since YouTube hosts millions of user-uploaded clips from copyright-protected films and television programmes. The group was able to sign retrospective licensing agreements with several media and copyright owners to cover these uploads, but failed to settle terms with Viacom, who in response launched a $1bn lawsuit for infringement. Those concerns have all faded with time as a new generation of online streaming services have developed. However, YouTube has chosen to stick with its original model of free-to-view personality-driven streams, mainly aimed at a teen audience. As a result, it has been outmanoeuvred in more sophisticated content by Netflix and Amazon who have effectively cornered the market in high-profile original scripted programming.

The group's newest commercial frontier has become mobile communications. Like search this is an area where, after a slow start, Google has ended up dominating the market. At the end of 2007 the company launched the first iteration of its Android operating system for mobile phones, which was designed to make it easier for developers to make games and other software which would run on many different makes and models of handset. Despite the early buzz over Android, concrete results from the initiative were slow to emerge. By May 2008, not a single handset manufacturer had confirmed its intention to introduce an Android handset, and several of the major players instead backed the launch of a rival platform, LiMo, based on a Linux system. Finally, the Taiwanese company HTC signed up to develop the first Android phone, the G1, which launched via the T-Mobile network in the US and UK in 2008 and in other markets in 2009. Motorola followed suit, sensing an opportunity to counter the success of Apple's iPhone. Its Droid handset launched on the Verizon service in the US towards the end of 2009, and quickly established a reputation as one of the strongest challengers to Apple's iPhone.

That lead to a flood of of other manufacturers jumping onto the bandwagon in an attempt to combat the equally rapid rise of Apple's iPhone. Samsung, LG and Sony Ericsson also signed up to launch Android-powered phones, and as a result Android was established as the top-selling operating system for smartphones in the US by the second quarter of 2010, outselling Apple's iPhone. That process continued to accelerate as greater numbers of manufacturers moved across to Android during the next two years, and as sales of BlackBerry and Symbian-powered devices plunged. For 2Q 2014, Android's total share of the global smartphone sector hit a new high of 85%, though it slipped back at the end of the year to 76.6% (4Q IDC), compared to 19.7% for second-placed Apple's iOS. Third place was held by the Windows Phone system at 2.8%, while once-mighty BlackBerry languished at just 0.4%.

The success of Android also prompted Google to take its first steps into commercial hardware, with the launch of its own mobile handset, Nexus One. Manufactured under contract by HTC, it launched in early 2010. Unlike most other handsets, Google sold the Nexus One direct to customers, without signing up a pre-arranged network partner. However, sales fell sharply following the emergence of other Andoid-powered devices, and the Nexus One was eventually discontinued. Instead, in August 2011, Google announced the acquisition for $12.5bn of Motorola Mobility. Eager not to upset other Android manufacturers, Google sought to play down its interest in Motorola's handset business, although the deal was clearly intended to protect the company's mobile operating system. Instead, Google said its principal interest was in Motorola's collection of more than 20,000 technology patents, a significant source of royalty income in their own right. Yet this business too proved too hard a nut for Google to crack. In a surprise turnaround, it sold on the handset business in early 2014 to Lenovo for just $2.9bn, although it retains ownership of the majority of Motorola's more valuable patents. Instead, it has continued to develop additional Nexus models with HTC.

In a different approach to the same concept of mobile communications, Google has also introduced its own line of laptops, branded to the Chrome operating system, and designed to access all software and services via an online connection. Initial versions of the Chromebook were priced as low of $199, serving as virtual wifi terminals with only minimal onboard software or storage. A new line of touchscreen enabled devices launched in 2013 under the name Chromebook Pixel. Another extension of the Chrome brand was the Chromecast streaming TV plug-in designed to allow its devices to show on-demand TV streams.

The group has also funded or acquired a series of more unusual research-based projects. Google Glass was a sort of wearable computer integrated into eyewear, launched with a big splash in Spring 2012. However the initial euphoria over its launch soured quickly, with many people concerned about the potential privacy implications of such a device, as well as its steep $1,000-plus price tag. The project was scaled back in 2015, and transferred to the development department of another subsidiary, Nest Labs, which Google had acquired for $3.2bn the previous year. Co-founded by Tony Fadell, one of the developers of Apple's original iPod, Nest makes a range of wifi-controlled thermostats and smoke detectors that are designed to work with "smart home" technology, so that they can be controlled remotely from a smartphone app. Google also adapted its Android software to be used in other wearable devices, such as smartwatches, under the name Android Wear.

The group has also been experimenting in other more grandscale hardware areas. It has been working for several years on self-driving cars, and this could be made available to the public by 2018. In 2013, the company purchased Boston Dynamics, a developer of advanced robotics for military and industrial use. Project Loon is a bold project to offer internet connectivity in remote corners of the globe like the wilds of Brazil and New Zealand via a network of high-altitude weather balloons, and the group has invested in biotech developer Calico which hopes to develop technologies to control aging.

The number of low-earning or pie-in-the-sky add-ons backed by Google has raised some serious questions about the company. Competitors argue, with some justification, that the company is a one-trick pony. It has spread its offering into a vast collection of different niches, yet not one of these currently generates significant or even any returns. Virtually all of the company's revenues - 89% in 2014 - are still generated by online advertising from the AdWords and AdSense programmes. The remaining revenues are almost mostly generated by the sale of apps, music and movies from the online Google Play store, though there is a small contribution from hardware.

Since 2010, though, fears of Google's dominance have been softened by the emergence of another, and potentially even bigger, force: Facebook. There is little question that by 2011, Facebook had captured the crown once held by Google as the digital industry's "prime mover". Where once, Google was the business which was copied by rivals, now Facebook is arguably the company dictating the way in which the industry develops.

Financials

Not even Google was entirely immune from the slowdown in global advertising during 2009. After several years of double-digit growth (31% in 2008), Google's group revenues rose just 8% in 2009 to $23.65bn. However net income jumped by 54% to $6.5bn. The previous year's figure was impacted by a $1.1bn writedown in the value of the company's investments in AOL and WiMax ISP Clearwire. Top-line was back on a steep upward curve again in 2010, rising 24% to $29.3bn, while net income soared by more than 30% to $8.5bn, an impressive 29% profit margin. However, there were signs of a slowdown in 2011, especially in the final quarter. Full year revenues jumped 29% to $37.9bn, but net income rose by only 14% to $9.7bn. Still good, but less than investors had expected. That 29% profit margin from 2010 slipped back to 26%.

For 2012, Google's revenues passed a new milestone. The addition of Motorola contributed to a 32% jump to $50.18bn. The rise in net income was more muted, adding 10% to $10.74bn. Figures for 2013, showed the continuing drag on Google's overall performance from Motorola. Combined revenues rose by 19% to $59.83bn, while net income was up 20% to $12.92bn. Yet Motorola contributed only a modest improvement in revenues and an increase in operating losses.

Performance for 2014 was slightly disappointing. Revenues rose 19% to $66.0bn, but an even bigger proportional increase in expenses held back profit growth. The silver lining was the disposal of Motorola. That struggling business had contributed a big loss to the overall group in 2013, whereas its sale in 2014 generated an even bigger $516m profit. As a result, including the Motorola gain, net income put on 12% to $14.44bn. Without Motorola, net income from continuing operations was up by under 5% to $13.93bn.

Strong growth at the core online division in 2015 powered a dramatic rise in the value of newly created parent Alphabet Inc's shares. As a result it nudged Apple out of the way to seize the #1 position as the world's most valuable business, with a market cap of $560bn. Full year revenues rose 14% to just under $75.0bn, while net income was up 11% at $15.8bn. For the first time, the group broke out the financial contribution from its so-called "other bets", its dabbling in other areas than search, such as Nest internet-enabled thermostats, healthcare, self-driving cars and so on. They contributed combined revenues of $448m for the year, and a significantly increased net loss of $3.1bn, including share options. However that was covered by a 23% jump in operating profits from the core online business, which contributed the remaining $74.5bn in revenues.

Advertising contributed more than $50bn of revenues for the first time in 2013, rising to $67.4bn in 2015. That sum comprised $52.4bn from advertising on Google's own webpages including YouTube (up 16% on the year before), and a further $15.0bn (up only 3%) from its network of third-party publishers offering syndicated search results and advertising under the AdSense or similar programmes.

In 2014, 57% of Google's revenues, and more than half its user traffic, originated outside the US. Its biggest international market is the UK, which accounted for $6.5bn of revenues in 2014. The strength of its UK operations led to a media backlash in 2014 when it was disclosed that the group had paid only £20m of local tax in 2013 on sales of £3.8bn. A retrospective deal was finally agreed with the UK government to pay an additional £130m in back taxes. However, this too was widely criticised by opposition politicians and the media. Several other European countries are pursuing similar negotiations with Google.

For 2016, combined revenues surged by over 20% to $90.27bn, while net income was up 19% to $19.48bn. The group has yet to provide a full-year analysis of divisional performance, but perhaps the most notable development for the final quarter was a huge surge in the contribution from so-called "other bets", which comprise the non-Google operations such as Waymo self-driving cars and Nest connected devices. These continue to rack up large losses - down slightly year on year but still over $1bn for 4Q - but their revenues jumped by 75% to $262m. Within the main Google business too non-advertising revenues, such as app store and Nexus or Pixel hardware sales, jumped by 62% to over $3.4bn. However, search advertising continues to dominate the company's revenue stream, contributing over 86% of total sales for the final quarter. At constant currency rates, this marked the 20th consecutive quarter in which Google's own online properties have posted annual growth of 20% or more in advertising sales.

Alphabet Inc took a charge of almost $10bn in connection with tax reforms in the final quarter of 2017, resulting in a $3.0bn loss for the quarter (compared to a $5.3bn profit for the year-ago period). However, otherwise, performance remained strong, with final quarter revenues topping $30bn for the first time. For the year, Alphabet's revenues surged 23% to $110.9bn. That 4Q tax hit, and a previously reported provision of $2.7bn for litigation with the EU, caused net income to slide by a third to $12.7bn. Excluding those exceptional items, operating income was up around 22% year-on-year.

Google had another storming year in 2018, but the strains of diversification into other areas showed in 4Q results from parent Alphabet Inc. Increased spending on investment-intensive "other bets" like Waymo self-driving cars, Calico medical research and Verily life sciences weighed heavily on operating margins across the group as a whole. Other bets reported a steep rise in operating losses to $3.4bn. There was also a big increase in fines payable in Europe for misconduct issues. These almost doubled to over $5bn for 2018. Still, that left only a small dent in total revenues, which rose by almost a quarter to $136.8bn. Net income more than doubled to $30.7bn, helped by significantly lower tax charges. Pretax income, by comparison, rose by only 28%.

Background

Google's founder, Sergey Brin and Larry Page, first met in 1995 when they were graduate students at Stanford University, and by the end of that year had begun to experiment with ways of analysing the vast quantities of data available on the internet. The first prototype for Google was BackRub, developed in 1996, a search engine which ranked web pages according to the number of backlinks to each page from other sites. This eventually led to the development of the current system, a sophisticated version of what is essentially a very simple concept: Google interprets a link from Page A to Page B as a vote by Page A for Page B. However, in addition, votes cast by pages which are themselves "important" weigh more heavily and help to boost the ranking of the pages to which they link. By the time the pair decided to test the business commercially, they had changed the name to Google, a play on the mathematical term Googol, which defines a 1 followed by 100 zeros. Google was officially born in September 1998. For more information, see the company's own entertaining account of its history here on its corporate site.

Last full revision 25th March 2016

* Archive page for historical reference only. This profile is no longer being actively updated. See active page here *


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