Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

Google’s Competitive Advantages – Fixed Costs

Posted on | March 17, 2011 | No Comments

We’ve been reading The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies by Jonathan A. Knee, Bruce C. Greenwald, and Ava Seave in my Digital Media Management II class at NYU. The book challenges some of the key assumptions regarding the management of media companies including the importance of brands, talent and deep pockets. But its main point is to drive home the importance of some key competitive advantages for media companies. It perceives them primarily as a way of setting up barriers for other companies competing or entering into its markets. These barriers include fixed costs, network efforts, customer captivity, proprietary technologies, and government protection.

In this post, I wanted to focus on Google’s fixed costs as a competitive advantage. Fixed costs are those that do not vary according to production or sales levels, or in Google’s case, the amount of advertising sold. While fixed costs can certainly be a liability to a firm, they make it difficult for any other company to challenge them without matching its expenditures or finding a way to be more efficient or transformative. (Google itself transformed the advertising business)

If you are not very familiar with Google’s business strategy, I would recommend reading Steven Levy’s “Secret of Googlenomics: Data-Fueled Recipe Brews Profitability” on the Wired website. It provides an excellent introduction to the search behemoth’s business model, primarily built around its Adwords and Adsense advertising business. Preliminary estimates for Google’s 2013 revenues look to be around $58 billion dollars.

Google has a number of advantages, perhaps foremost being the massive investments in its built infrastructure. Google’s mission of “organizing the world’s information” requires more than the most sophisticated “big data” software. It also necessitates huge investments in physical plant, particularly data centers, power systems, cooling technologies, and high-speed fiber optic networks.

Google has built up a significant global infrastructure of data centers (increasingly located close to cheap, green tech) and connecting its storage systems, servers, and routers is a network of fiber optic switches. For example, the Eemshaven data center facility in the Groningen region of the Netherlands is at the end connection point for a transatlantic fiber optic cable. The US$ 770 million data center is also being built near a power plant and contracts for other green energy providing an estimated 120 megawatts of cheap electricity. For the most part, the details on fixed costs are not readily available as they are proprietary and represent trade secrets. However, aggregate numbers of Google’s fixed costs are informative.

Microsoft of course, has the financial wherewithal to compete with Google. They have been investing in data centers for a number of cloud services including Microsoft Live’s SkyDrive. With the expansion of their Bing search challenge to Google, you can expect significant investment in a global infrastructure of server farms and communications links integral to a wide range of new advertising and e-commerce services. Whether they can catch up with Google remains to be seen but a whole industry focusing on data centers is emerging that will make them more efficient to run and more economical for investment.

Anthony

Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications.

Comments

Comments are closed.

  • Referencing this Material

    Copyrights apply to all materials on this blog but fair use conditions allow limited use of ideas and quotations. Please cite the permalinks of the articles/posts.
    Citing a post in APA style would look like:
    Pennings, A. (2015, April 17). Diffusion and the Five Characteristics of Innovation Adoption. Retrieved from http://apennings.com/characteristics-of-digital-media/diffusion-and-the-five-characteristics-of-innovation-adoption/
    MLA style citation would look like: "Diffusion and the Five Characteristics of Innovation Adoption." Anthony J. Pennings, PhD. Web. 18 June 2015. The date would be the day you accessed the information. View the Writing Criteria link at the top of this page to link to an online APA reference manual.

  • About Me

    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

    You can reach me at:

    anthony.pennings@gmail.com
    anthony.pennings@sunykorea.ac.kr

    Follow apennings on Twitter

  • Traffic Feed

  • Recent Posts

  • Pages

  • RSS CNN.com – RSS Channel – App Tech Section

    • Untitled
      Just as we now realize that fast food was "engineered to addict us," says author Franklin Foer, we must recognize the role that Big Tech plays in "shaping our future as a species."
    • Untitled
      One Russian-linked campaign posing as part of the Black Lives Matter movement used Facebook, Instagram, Twitter, YouTube, Tumblr and Pokémon Go and even contacted some reporters in an effort to exploit racial tensions and sow discord among Americans.
    • Untitled
      The Rosetta spacecraft was launched in 2004 and arrived at Comet 67P/Churyumov-Gerasimenko on August 6, 2014, becoming the first probe to rendezvous with a comet. On November 12, Rosetta dropped its Philae lander to the comet's surface -- another first. But Philae bounced and didn't grab onto the comet in its designated landing spot. After […]
    • Untitled
      Digital artist Jan Frojdman spent three weeks shifting through 33,000 images obtained from NASA to create this 3D model of Mars.
    • Untitled
      Members of the Cassini mission say goodbye to the spacecraft, their coworkers and some long-held traditions.
  • October 2017
    M T W T F S S
    « Aug    
     1
    2345678
    9101112131415
    16171819202122
    23242526272829
    3031  
  • Crossword of the Day

  • Disclaimer

    The opinions expressed here do not necessarily reflect the views of my employers, past or present.