SWOT analysis of Alphabet (Google) (5 Key Strengths in 2021)

Company Background

Key Facts

Name	Alphabet Inc.
Founded	October 2, 2015 (Google founded in September 4, 1998)
Logo
Industries served	Internet (Google Search, Google Ads, Gmail, YouTube) Computer software (Android, Chrome) Consumer electronics (Chromecast, Google TV, Pixel) Venture Capital (CapitalG, GV) Healthcare (Verily, Calico)
Geographic areas served	Worldwide (more than 100 countries)
Headquarters	Mountain View, California, U.S.
Current CEO	Sundar Pichai
Revenue (US$)	182.527 billion (2020) 12.8% increase over 161.857 billion (2019)
Profit (US$)	40.269 billion (2020) 17.3% increase over 34.343 billion (2019)
Employees	135,301 (2021)
Main Competitors	Amazon.com, Inc., Apple Inc., Facebook Inc., Microsoft Corporation, The Walt Disney Company, Netflix, Inc. and many other Internet, computer software, consumer electronics and healthcare companies.

Alphabet Inc, (formerly known as Google) is a collection of wide variety of businesses, specializing mainly in internet services and software industries. In 1996, Google was started as a project to create a search engine and was first called Backrub. Backrub and later Google search engine’s unique approach to determine the importance of individual pages has led to a creation of the world’s most successful search engine. Now, Alphabet (a parent company of Google) is an internet giant, dominating mobile OS (Android), browser (Chrome), search (Google Search) and online advertising (Google Ads) markets. Each of Google's core products and platforms such as Android, Chrome, Gmail, Google Maps, Google Play, Search, and YouTube has over one billion monthly active users.^[1]

The company divides itself into 3 core segments: Google Services (Android, Chrome, hardware, Google Maps, Google Play, Search, YouTube), Google Cloud (Google Cloud Platforms and Google Workspace) and Other Bets, of which, Google Services generate 92.4% of the revenue.

Google mainly generates the revenue by delivering performance (click or other action) and brand (simply displaying ads) advertising. The most important company’s product is its search engine, or more accurately, a combination between a search engine and search advertising, which allowed the company to earn 104$ billion or 57% of the total revenue in 2020 alone. In total, Google advertising brought in US$146,924 for Alphabet or 80.5% of the total revenue. YouTube ads and Google Other segment (Google Play, YouTube subscriptions and hardware sales) segments were the top contributors to the revenue growth in 2020, growing by 30.5% and 27.6%, respectively.

Other Bets or ‘Moonshots’ is a portfolio of new promising businesses, which, as Alphabet is expecting, will disrupt the industry, in which they operate, or dominate the newly emerging industries and will generate significant revenue in the future. These businesses include healthcare, capital investment, internet services and other businesses.

Currently, machine learning and AI development is the focus of Alphabet’s efforts. According to the company’s financial report:

“Across the company, machine learning and AI are increasingly driving many of our latest innovations. Our investments in machine learning over the past decade have enabled us to build products that are smarter and more helpful. For example, a huge breakthrough in natural language understanding, called BERT, now improves results for almost every English language search query.

DeepMind made a significant AI-powered breakthrough, solving a 50-year-old protein folding challenge, which will help us better understand one of life’s fundamental building blocks, and will enable researchers to tackle new and difficult problems, from fighting diseases to environmental sustainability.”^[1]

The company faces lots of competition in all aspects of its business, including:

• “General purpose search engines and information services, such as Baidu, Microsoft's Bing, Naver, Seznam, Verizon's Yahoo, and Yandex.
• Vertical search engines and e-commerce websites, such as Amazon and eBay (e-commerce), Booking’s Kayak (travel queries), Microsoft’s LinkedIn (job queries), and WebMD (health queries).
• Social networks, such as Facebook, Snapchat, and Twitter. Some users increasingly rely on social networks for product or service referrals, rather than seeking information through traditional search engines.
• Other online advertising platforms and networks, including Amazon, AppNexus, Criteo, and Facebook, that compete for advertisers that use Google Ads, our primary auction-based advertising platform.
• Providers of digital video services, such as Amazon, Apple, AT&T, Disney, Facebook, Hulu, Netflix and TikTok.”^[1]

You can find more information about the business in Alphabet's official website or Wikipedia’s article.

Alphabet (Google) SWOT analysis

Strengths

1. Dominance in web search, video content sharing, digital advertising, mobile OS, web browser and many other markets

Alphabet’s Google is an internet company that primarily competes in the web search and digital advertising markets. However, the company’s product portfolio is very diverse and includes both related and unrelated hardware and software products and services. Google dominates most of the markets it operates within, including:

• Digital advertising. Alphabet’s main source of revenue is Google’s advertising business. In 2020, advertising generated US$146,924 billion or 80.5% of the total company’s revenue. According to eMarketer,^[2] the U.S. digital ad spending in 2020 is expected to be US$142.39 billion with Google taking 29.8% of its share.^[3] Globally, digital ad spending is estimated to have reached US$332.84 billion in 2020. Google has earned more than 44% of that digital ad spending. The company dominates the digital advertising market through many different channels, including Google Ads, Google Ad Manager, Google Marketing Platform, YouTube ads and the Android OS.

  By dominating the digital advertising market Google can better understand current advertising trends, collect an enormous amount of information about online users’ shopping habits, and enhance their related services by improving targeted advertisements.

  Figure 1. Digital ad spending share in the U.S. in 2020

  

  Source: eMarketer^[2][3]

• Web search. Google Search is the company’s search engine that people use to find information online. It’s the most widely used search engine in the world with the 86.6% desktop market share and 95.03% share of the mobile segment as of February 2021.^[6][7] Google’s search engine domination is especially prominent in Europe with the company having more than 97% market share in the mobile market segment. The company’s closest competitors, Bing, Yahoo, Baidu and Yandex, all have only 2.69%, 1.47%, 1.33% and 0.65% global search engine market share, respectively.

• Mobile operating system. Android OS is the number one mobile OS in the world, being used by some of the largest smartphone vendors such as Samsung, Huawei, Xiaomi, Vivo, OPPO and Lenovo. In 2021 February, Google’s Android had 71.9% of the worldwide smartphone OS market share, compared to 27.33% iOS market share. Android has no other significant competitors in the market.

  Figure 2. Worldwide smartphone OS market share (in percentages) in 2021

  

  Source: StatCounter^[8]

  Android’s rising market share has led to the increased popularity of other Google products, such as Google Play, Google Maps, the Chrome browser and Google Search, further strengthening company’s position in these markets.

How does Google’s leadership position in these markets help the company to gain competitive advantage?

• Massive amount of information. Google receives an enormous amount of information about its users and their habits through Google Search, Google Analytics, YouTube, Android OS, Chrome and its other products and services. This information provides Google with a key competitive advantage.

  Google can target advertisements or adapt its products to its users’ needs better than any competitor, because it builds smarter algorithms and obtains much more information about its users.

• Growing brand awareness. Market leadership provides Google with a lot of publicity, attention, and more users via strong brand recognition.

• Power over customers, competitors and suppliers. To some extent, Google can use its dominant market share as a source of power over its customers, competitors and suppliers.

2. Excellent acquisition capabilities

Since 2016, Alphabet has acquired 58 companies. From 2016 to 2020, the company has averaged 1 acquisition per month, which is one of the highest business acquisition rates between its competitors.

Source: Crunch base^{[9][10][11][12][13]}

Acquisitions are a key strategy in Alphabet’s gaining of competitive advantage.

Through buying other companies, Alphabet acquires new skills, technologies, patents and improves its own products and services, allowing the company to grow faster with less effort. Often, the company acquires already finished products that grow into successful businesses, like YouTube.

Alphabet is like many other technology companies in the sense that without such acquisitions, they would have to invest heavily in R&D to either improve their products or create new ones. Alphabet has proven its capabilities in terms of mergers, acquisitions and successfully integrating businesses into the company.