Google: Data-driven Value Creation and Value Capture

Google uses data and analysis creatively in every aspect of it’s operating model, value creation, and value capturing.

From it’s inception Google utilized data to provide a superior search engine to its users utilizing data to figure out the relationships between websites and not only counting the number of the search term appearances on the page. Website’s importance was determined by the number of pages (and their importance) that was linked to the site- Larry and Sergei named this unique technique PageRank. By the time their competitors realized what Google does, Google not only grabbed a huge market share by providing superior search results, but also was able to accumulate enormous data from months of usage and millions of searches, which improved the engine even more.

After creating high value for its free users through data, Google was able to capitalize on its operating model and capture value by inserting relevant ads on top of the search results.

The AdWords model uses data in various ways:

First the ad should be as relevant as possible to the searched term as Google only captures value if the users click on it. Therefore the Ad location is determined not only by the maximum bid offered by the advertiser but is highly depended on the Quality Score of the ad. The quality score is a function of the historical data of the Click-Through-Rates, analysis of the ad copy relevance to the keyword, analysis of the landing page quality, etc.

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Second, many data points and reports are available to the advertisers. Google wants the advertisers to succeed. Google Provided advertisers free keyword and website analytical tools such as the Keyword tool and Google Analytics. Google pushes for data usage by the customer to drive better advertising results. Other than being nice, an advertiser that is happy with his Google AdWords performance advertises more, spends more, and drives the keyword bids up, which on its tern increases Google’s value capturing capabilities.

Third, over the years Google found many more ways to capitalize using data. It improves its Spam algorithms in Gmail by analyzing what emails are similar to the once we marked as spam before. It uses it’s understanding about each user based on past browsing history for categorizing users and providing them with the most attractive ads for them. Google advocates for data usage and practicing it, using AB testing, deep data analysis, machine learning, and AI making its products smarter faster and in many cases more profitable.

One interesting example of data analysis and utilization is the autocomplete feature in the search engine. Google saves people time by offering autocomplete suggestions for the term they search. Moreover, Google uses your location to display relevant local results and increase click likelihood. Google is improving the search functionality and innovating on their original model.

This is only the tip of the iceberg of how Google, a company which started by analyzing data of the World Wide Web websites initially expanded its offering to other adjacent fields gathering and analyzing data in every step of the way. In the recent years Google offerings expanded beyond the “adjacent” fields, however every such expansion (Nest purchase for example, or the self-driving car) allows the company to get even a bigger chunk of a person’s data allowing them to improve their servings and keep high market share in the online advertising world.