Business I Environment I Society

Issue

# 6

PESTLE Analysis of Google (Alphabet Inc.)

Google Inc., which is now known as Alphabet Inc., is actually aholding company that trades under two different ticker symbols:NASDAQ: GOOGL and GOOG. Alphabet is similar in structure toWarren Buffett’s Berkshire Hathaway (NYSE: BRK.B).

Like Berkshire Hathaway, it has a large number of subsidiaries thatoperate in a wide variety of businesses. Another thing Alphabet hasin common with Berkshire Hathaway is that it offers two classes ofstock: Class A, known as GOOGL, and Class B, which trades asGOOG.

The core of Alphabet’s business is the Google search engine, whichis still the world’s most popular search tool. The head of Google’ssearch engine, Amit Singhai, claims that Google does 100 billionsearches a month. The next biggest competitor, Microsoft’s Bing,only performed 35 billion searches, or about one third of Google’s.Google’s business efforts are incredibly profitable; it reportedhaving around $69.8 billion in the bank on June 6, 2015.

Google makes its money by charging for advertising that appearswith its searches. It is also increasingly involved in ecommerce,including sales of products such as insurance and financial services.Alphabet also owns a wide variety of companies involved inresearch and development. These include some high-profileprojects such as self-driving cars and robotics.

Google’s management team radically reorganized the company inJuly 2015 by creating the Alphabet holding company. Naturally,such a move could make Google very vulnerable to changingpolitical, economic, social, legal, technological and environmental,or PESTLE, conditions.

Therefore, it is a good time to see how PESTLE could affect thistech giant.

Political Factors That Could Affect Alphabet’s Future

There is widespread criticism that Google is a monopoly. This hasled to antitrust action, particularly in Europe. There have been callsfor Google to be broken up or for it to change the way it conductssearches.

There has also been some criticism that Google has too muchcontrol over the flow of information. Social scientists RobertEpstein and Ronald E. Robertson have even made the claim thatGoogle’s search results could influence the outcome of elections.This could lead to calls for nationalization or stricter governmentoversight of Google.

Political Factors That Could Affect Alphabet’s Future

Google is one of many U.S. companies that stashes cash in foreignbank accounts to avoid high American corporate income taxes.There is growing political pressure in the United States to forcethese companies to bring that money into the country. If thisoccurs, it could cut Google’s cash flow. This could also force Googleto make costly foreign acquisitions just to avoid taxes.

Additionally, Google has not been able to enter some potentiallylucrative markets, such as China, because of political reasons. Thiscould limit the company’s future growth.

Economic Factors That Could Affect Google

Alphabet has accumulated a huge amount of cash, which makes itvery vulnerable to inflation. A sudden drop in the value of acurrency could reduce the company’s value.

The large amount of money Google keeps overseas makes it veryvulnerable to exchange rates and the currency market. If the dollaris strong, Google could lose a lot of money if it is forced to bring alot of cash back into the United States. The company could alsolose money if the dollar is weak because it could be forced toexchange a stronger currency for a weak dollar.

A sudden drop in Alphabet’s high stock price could hurt thecompany by reducing its market capitalization.

Social Factors That Could Affect Google

1. A decline in the use of traditional laptop and desktopcomputers, which historically have been the most popularmeans of accessing Google. Tech Crunch reported that moresearches were done from mobile devices than computers forthe first time during the summer of 2015.

2. Growing use of social media solutions such as Facebook andWhatsApp for activities traditionally done on the Internet. Thisincludes search, streaming video, shopping and money transfer.

Social Factors That Could Affect Google

3. Google has not been able to translate its success in traditionalsearch to other segments of the market, including the vitalshopping search. Amazon is now the top search tool for onlineshoppers, Forester research reported. Around 30% of all onlineshoppers start their search at Amazon. That makes it hard forGoogle to cash in on such transactions.

4. A decline in traditional media such as television is forcingcontent providers such as TV networks and movie studios todevelop their own content delivery platforms that competedirectly with YouTube. Some companies such as Amazon arenow offering video content that cannot be accessed viaYouTube.

Social Factors That Could Affect Google

5. Popular suspicion and distrust of Google. Many people viewGoogle as sinister and too powerful. Some web users nowdeliberately seek out alternatives such as Duck Duck Go simplyto avoid contact with Google.

Technological Factors That Are Changing Google’s Business

1. Growing use of mobile devices to access the Internet. Some ofthese devices, including Apple products, have proprietarysearch engines that compete with Google.

2. Some competitors; notably Amazon and Microsoft, havedevised search algorithms that are as popular and effective asGoogle’s. Amazon has been able to dominate shoppingresearch with its solution. There is a strong possibility that acompetitor could devise a better search solution than Google’sat some point.

Technological Factors That Are Changing Google’s Business

3. Growing sophistication of social media solutions and instantmessaging. Solutions like WhatsApp and Facebook Messengercan now be used to send news, audio messages and evenstreaming video. Programs like Venmo and WeChat can be usedto make financial transactions. This provides an alternative toGoogle’s products that is not computer based.

4. The growing sophistication of apps. It is easier than ever fordesigners to come up with alternatives to Google’s products.

5. Many companies are now designing proprietary apps to allowcustomers to bypass search engines. Examples of this includeshopping apps.

Legal Factors That Could Affect Alphabet’s Business

1. Google is increasingly entering heavily regulated fields such asfinance, insurance, telecommunications and automobiles. Thiscould place severe restrictions on its operations.

2. Liabilities and legal costs could increase as Google enters fieldslike insurance and experiments with delivery services.

Legal Factors That Could Affect Alphabet’s Business

3. Successful antitrust action in Europe could give rise to similarefforts elsewhere, particularly in the United States. This couldlead to expensive litigation and efforts to change Google’sbusiness model.

4. Established players in industries like insurance could uselitigation in an effort to keep Google out. This could increaselegal costs and lead to court rulings that could limit Alphabet’sexpansion.

5. Alphabet owns large numbers of patents. This invites litigationbecause of disputes over ownership.

Environmental Factors That Could Affect Alphabet’s Future

Google’s business model is heavily dependent on data centers andother Internet infrastructure that use large amounts of electricity.Efforts to control global warming by encouraging the use of costliergreen energy sources to produce electricity could raise Alphabet’soperating costs. At some point Google might not be able to offerfree services as it has in the past.

It remains to be seen whether Alphabet’s new business model willinsulate it from these factors. If it can successfully protect thecompany, Google could be more profitable than ever.

Thank You !