Google's revenue worldwide from 2002 to 2018 in billion U.S. dollars, Statista, 2018
BrandZ Top 100 Most Valuable (2019)
One of the biggest challenges in management is identifying business opportunities and defining priorities to expand revenue. And the classic tool to help managers deal with a myriad of options is the Ansoff’s Product-Market Expansion Grid or Ansoff Matrix (Ansoff, 1957). In his 1957 article, Ansoff defines product/market strategy as "a joint statement of a product line and the corresponding set of missions which the products are designed to fulfill”. Supported by this straightforward approach, Ansoff Matrix has defied time and market changes, becoming one of the most important management tools.
The objective of this article is to better understand how the Ansoff Matrix and its recent developments can be used by companies like Google to improve their abilities in managing an ever-growing portfolio of products offered to different segments of market. It is particularly useful for managers aiming at better organizing the discussion about how to expand their companies’ revenues.
Ansoff Matrix: Foundations
The concept of a “mission” is borrowed from military jargon: “A product mission is a description of the job which the product is intended to perform.” From that point, Ansoff establishes four basic missions for each of the four interceptions of the matrix.
Ansoff Matrix (Ansoff, 1957)
Each of the above strategies describes a distinct path which a business can take towards the future growth. A simultaneous pursuit of more than one of them at the same time is usually a sign of a progressive, well-run business and may be essential for survival in the face of economic competition.
- Market Penetration poses the lowest risk since the company will focus on its current products and markets and will be able to boost its currents assets and capabilities – if it has a strong competitive advantage and/or the market is growing.
- Market Development presents further risks for the company since this means expanding to unknown markets. It requires company’s strong marketing capabilities on top of core competencies related to its current products. The firm will be able to explore opportunities, repositioning the brand, exploring new uses for the product or expanding to new regions.
- Product Development is riskier than market access, but it could make sense when the company identifies an opportunity to sell new products to meet needs from its customers; has a strong brand and large participation in a competitive market, where continuous innovation is necessary to avoid obsolescence and, finally has a strong R&D and/or proprietary technologies so that new products can boost their advantage thanks to the pioneering spirit.
- Diversification is the path that presents the biggest risks, since the company will be simultaneously developing new products and entering new markets and will need to develop or gain new resources and capabilities. The diversification strategy generally requires new skills and almost invariably leads to physical and organizational changes in the structure of the business which represents a distinct break with past business experience.
Ansoff Matrix: Expanding the Concept
Several authors offered their contributions to improve the classic matrix, making it more suitable to the challenges of the high tech, globalized market of the twentieth century. Others created new managerial tools, clearly inspired in the original one. Ansoff himself reviewed the concept in subsequent articles and books (Ansoff & McDonnell, 1988). In 1999, Philip Kotler suggested an important “expansion” in both axes of the Product/Market matrix (Kotler & Armstrong, 1999). This suggestion reflects the strong complexification of markets, with increasing competition and the development of international trade. Inserting an additional step between “current” and “new” provides a more refined analysis and better orientation for managers.
Expanded Ansoff Matrix (Kotler & Armstrong, 1999)
Expanded, the Ansoff Matrix has now nine intersections, representing a set of actions that a company may take to deal with new market opportunities brought by this analysis. A short description of each of the nine possibilities is presented below.
Expanded Ansoff Matrix (Kotler & Armstrong, 1999)
As stated above, starting with its main product – the search engine - Google developed a wide portfolio of products and services, some of them with great success. Using the expanded Ansoff Matrix, we can better understand Google’s efforts to expand its revenue and develop new ventures. The Ansoff Matrix helps managers organize the pursuit of new initiatives considering diversification in both axes, markets or products, or both at the same time.
The Google Family
From the very beginning of its expansion, Google invested in new products for its existing customers, which corresponds to the Strategy 3, Product Development. These clients already used the main Google tool – a search engine, so the company started to offer new products to its users in order to meet their new demands, thus, limiting the entrance of competitors in the industry that potentially could threaten the market with the development of specific products and services.
Besides Google Search, the “generic” search engine, there are several other search tools: Google Books, for searching complete texts from books, or Google Custom Search, which allows users to create customized searches for their websites, and Google Scholar, for searching academic papers. They represent typical examples of the Strategy 2, Product Modification, an effort to satisfy specific needs of the same market by adding new important features to the original product.
But Google also targeted new markets developing new products, which corresponds to the Strategy 9, located in the lower right corner of the Matrix - Diversification. Google Maps competed in the market with companies like Garmin and Tonton, beating these competitors with solutions that explored the possibilities of cell phones; despite having different aspects and functioning, the business model is the same: selling ads, in this case complemented with geo-location. In another initiative aimed at attracting new markets with new products, Google acquired YouTube in 2006, boosting its search algorithms and applying the same successful revenue model: here, ads are related to specific content – videos. Other examples of the Strategy 9 are the Google Chrome browser, Gmail, Google Translator and Android. Most of these products are offered for free to users, generating income when combined with advertising services like AdSense (advertising service offered for websites owners) and AdWords, an advertising service in the form of links, a highly segmented type of advertising, based on the cost per access system. With the DoubleClick technology, it is possible to map the interests of users; Google Analytics allows customers to track where and how people use their websites. Thus, most of Google’s income comes from online advertising; its competitive differentiation is offering to customers the exact idea of the number of views for each ad, something unthinkable for traditional media.
Expanded Ansoff Matrix, Google Products and Services
At the same time, the company tried to establish its presence in new regions with the same tools, a typical effort associated with Strategy 4, Geographic Expansion. Although this strategy was generally successful, Google faced problems in 2010, when it was banned from China. While crossing national borders following the waves of globalization, companies may take risks in environments where cultural, market and legal differences can bring unpleasant surprises.
We also often see Google adopting the Strategy 5, Expansion with Adaptation, to better meet customers’ expectations in other regions of the world. References to cultural events and national holidays on Google's home page are common, and the unsuccessful attempts to stay in China were followed by several changes in the tool.
Google Core Values
Google states its core values in the slogan “Don’t be evil”, later extended with “Do the right thing”. However, It is difficult to create and maintain a business of this size without criticism and problems. Google is accused of using its immense market power to smash competitors by offering services for free, sometimes losing money until it becomes the only company standing in the market and then starts charging for its services. Several tax conflicts with governments around the world brought attention to the company’s ethics. In France, Google was fined with €1bn for tax evasion, affecting its reputation among clients from all over the world, which proves that companies of all sizes should follow the rules and reflect society’s expectation regarding their managerial decisions (Google To Pay, 2019). Nevertheless, it is undeniable that Google provides relevant services to society, vastly increasing the access to knowledge, even for those who would be completely excluded otherwise. “The maximum of good for the maximum of people” – this is the main principle of corporate ethics.
Even after over fifty years from its initial formulation, the Ansoff Matrix is still considered a conceptual framework useful for the creation of market strategies. The more competitive, dynamic and turbulent sectors/markets are the more important the creation and execution of adequate strategies will be. Ansoff himself said that creating a strategy is not difficult – the true challenge is making it work (Ansoff, 1957). But the most important contribution the Product-Market Matrix created by Ansoff and expanded by Kotler offers is a set of guidelines for managers of different companies around the world. The case of Google presented here can serve both for better understanding of this tool and as inspiration for managers to develop the sense of entrepreneurship within their companies in search of new sources of revenue and growth in their careers.
Sources and References
100 Best Companies to Work For, Forbes, retrieved from: https://fortune.com/best-companies/
100 Most Valuable Global Brands, 2019, retrieved from: https://www.brandz.com/admin/uploads/files/BZ_Global_2019_WPP.pdf
Ansoff Matrix Definition, Importance, Advantages, Disadvantages, Example & Overview, retrieved from: https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/2550-ansoff-matrix.html
Ansoff, I., McDonnell, E. The New Corporate Strategy, 1988
Ansoff, I.H, Strategies for Diversification, 1957
Empresa, que possuia receita de US$ 5 bilhões em 2004, hoje dobra este valor em apenas um trimestre, 2012, retrieved from: https://olhardigital.com.br/noticia/infografico-acompanhe-a-evolucao-do-google/25522
Google Stock, 2020, retrieved from: https://www.nasdaq.com/market-activity/stocks/goog
Google to pay €1bn to end French tax probe, 2019, retrieved from: https://www.bbc.com/news/business-49674544
Google's revenue worldwide from 2002 to 2018 in billion U.S. dollars, Statista, 2018, retrieved from: https://www.statista.com/statistics/266206/googles-annual-global-revenue/
Heileman, J. Journey to the Center of Google, 2005, retrieved from: https://www.gq.com/story/google-larry-sergey
Kotler, P., ?Armstrong, G. Principles of Marketing, Volume 1, Prentice Hall, 1999.
Spencer, T. Product/Market Expansion Matrix, 2013, retrieved from: https://www.spencertom.com/2013/10/09/ansoff-matrix/#.XdRBD-hKgdV
Yarow, J. This Chart Shows Google's Incredible Domination Of The World's Computing Platforms, 2014, retrieved from: https://www.businessinsider.com/androids-share-of-the-computing-market-2014-3