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Sunday, March 04, 2007

Google : Business Model Wins

If ever you need to look for a case as to where business model could ensure win for an enterprise- do not look beyond Google. What an amazing enterprise, it is turning out to be! I was just about to compile and understand the financial muscle of Google when I stumbled on this excellent compilation by Eric Bangeman on Google’s financial muscle. Look at some of the impressive numbers therein:

- Revenue Growth from $400 million plus in 2002 to $10.6 billion in four years (should rate as an all time record for business!!)
- Cash & Short term investments from $2.1 billion in 2004 to $11.2 billion now
- 99% revenue comes from online advertising
- Traffic acquisition costs are 31.5% of the revenue(this means other competitors can’t even dream of spending this – more so by the nearest competitor, in this case Yahoo,further fortifying Google’s lead)

Look at the excellent financial lead Google has over competitors:

- Cost of sales at Google is at 8% & Eric claims that the corresponding number for Microsoft is 22% & Yahoo is 20% and Apple is 22%
- Cash on Hand for Google is at $11.2 billion , Apple has $12 billion, Yahoo has $1.6 billion while Microsoft has $34 billion in cash.

Look deeper – none of Google’s competitors have any wherewithal to compete on existing areas given the cost structures and the topline lead helps Google to keep running faster and creating more money – this is a double treat – it increases the distance of lead while further bringing down/maintaining the cost of operations(Google has been adding cash to its reserve at a faster rate in the last three years). And what does one do with this excess cash – keep investing in core business and focus on innovation and acquisition in new areas. Perfect – can any of the existing players dare to compete against Google in its core areas and expect to win over it? Forget it. Google is not just a technology platform, it has become a business platform –one that would ensure increasing rates of success.

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