Knowledge Innovation - Google (Innovative web-centric business model)

I originally posted this in my master's course discussion forum about how knowledge innovation can really "change the rules of the game" in a given industry. In my forum posting, I described the rise of Google in comparison with Microsoft which were reliant on their PC-centric model of software.

From the early 1980s to the late 1990s, Microsoft was the dominant leader in the software industry, totally eliminating all competition through its sheer financial might. It had a virtual monopoly of the PC market, where all new computers shipped to consumers were Microsoft Windows. Netscape, Novell and other companies were all defeated or eliminated out of the respective market shares. Microsoft made the PC the central component in their strategy to continue their dominance. It was the PC-Centric model that Microsoft had the consumers hooked on.

However, in 1996, here comes along two Stanford University Ph.D. candidates namely, Larry Page and Sergey Brin who both co-founded Google. Bill Gates did not see this coming where the PC-era has somewhat shifted towards the network age of the dot.com era. Google revolutionized the entire industry by introducing a very effective and efficient search engine which can allows users to access the most viewed or ranked web pages. Microsoft at that time, did not even have a search engine like what we see today in MSN. Yahoo was No. 1 search engine then, but Google slowly caught up in the upcoming years. Google currently has 49.2% share of searches as compared to Yahoo's 23.8% according to Nielsen NetRating for July 2006. MSN is in a distant third at 9.6%.

What is more significant for Google was the way they innovated using their new knowledge. They managed to somehow bring about a new business model of advertising in the web. This product service was called AdSense which allows web advertisers to put content to Google's search results. This had a cost-per-click and cost-per-view scheme. This advertising revenue brought about nearly USD 10.5 billion dollars in the fiscal year of 2006. With their high stock prices and large cash pile, Google had been able to attract the best software talent in the job market, and also make several key acquisitions like YouTube, Blogspot and Doubleclicks in the past 1-2 years.


Furthermore, there has been an introduction of use of on-line productivity software called Google Enteprise Premium Applications which is a direct challenge to Microsoft Office. Obviously, Google is trying to increase their licensing revenues which stood at only USD 112 million dollars as compared to their Adsense revenue which is significantly higher.

The market has shown tremendous confidence in Google's ability to innovate and to continue to earn better profits than Microsoft. On the last market closing day on 8 Aug 2007, the following are the stock prices for both companies:

Google: USD 525.78
Microsoft: USD 30.00

Thats a difference of nearly USD 495.78 dollars! Certainly Google is way ahead of Microsoft if stock prices are used as a measure of success.

However, It seems that Bill Gate is not resting on his laurels. He has been quoted in leaked memos in October 2005 to have said:


"More than any other company, we have the vision, assets, experience, and aspirations to deliver experiences and solutions across the entire range of digital workstyle & digital lifestyle scenarios, and to do so at scale, reaching users, developers and businesses across all markets."

So, the battle between the giants continues even though the old PC-centric world is long gone and we are now in the web-centric age.