Strategic business

analysis
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
Google is especially known for its search business, In fact, many people now say they googled it when explaining
that they searched the Internet for information on a particular subject. Google's market share of the search
markets is estimated to be about 75 percent in the United States and an even higher 90 percent in Europe. In fact,
many argue that this level of market share gives Google an effective monopoly in these markets. Of course, this
level of market share has given Google significant power with advertisers and customers, power which the firm
can use against its competitors. For example, the Federal Trade Commission (FTC) in the United States has stated
that Google has pressured sites such as Yelp, TripAdvisor, and even Amazon to allow it to obtain information on
users of their sites. Additionally, the FTC argued that Google has prevented advertisers from placing
advertisements on other search engines. But, the FTC also stated that Google had violated no laws. Google's two
largest rivals in the search business are Bing and Yahoo, both of which have about 12+ percent of the market. Yet,
with continuing changes at other Internet-based companies, firms such as Amazon and Facebook may become
important search market rivals in the near future by changing the focus of online shoppers. These companies
now compete for advertisers in a number of markets.
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
Google is much more than a search business. It has entered many markets and is doing research on and/or
preparing to enter many more markets. For example, Google recently opened its first Google retail shop in
London and plans to open several more. The intent is to compete, at least partially, with Apple's successful retail
stores. In another service market, Google recently introduced Android Pay as a competitive response to Apple
Pay and Samsung Pay (also in response to Apple's service product). Google has introduced a new flight search
tool, Google Flights, that helps customers find the best (including cheapest) airplane flights. This new ser vice
competes with several such services but especially with its large rival Expedia (originally started by Microsoft)
which acquired Travelocity and Orbitz (two major competitors) in 2015.

Google has also recently entered several other new markets, such as the insurance search market (eg, for the
best auto insurance), and is offering wireless connection to the Internet competing with large
telecommunications providers AT&T and Verizon. It is also planning en tries in the smartphone and smartwatch
markets. The smartwatch product is being developed in an alliance with TAG Heuer and Intel. The Google
prototype smartphone will operate with a core product and multiple components. It will be similar to a Lego
product where a customer can change screens such as adding a large screen to watch a major sporting event (eg,
the Super Bowl). Of course, these smartphone and smartwatch products will compete directly with Apple
products and other companies as well.
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
Thus, Google competes in many markets and with multiple rivals. In some markets, Google dominates such as
information search. But in other markets, it is a new entrant with a small market share competing against
established and major companies (e.g, airline flight search and wireless Internet services). In some markets,
Google is a primary actor (eg, search) offer ing major new services, and in other markets, it is a responder (eg,
Android Pay). As a result, Google's competitive actions are exceedingly complex with competitive dynamics
across multiple markets and competitors.
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
Firms operating in the same market, offering similar products, and targeting similar F customers are competitors.
Google has many competitors because it competes in a number of markets. For example, Google competes
against Bing and Yahoo in the general search market and against AT&T and Verizon in the wireless Internet
market. Its planned entry into the smartphone market will compete against Apple and Samsung, among others.
Thus, Google engages in a significant amount of competitive behavior (defined fully below, competitive behavior
is essentially the set of actions and responses a firm takes as it competes against its rivals).

Firms interact with their competitors as part of the broad context within which they operate while attempting to
earn above-average returns. Another way to consider this is to note that no firm competes in a vacuum; rather,
each firm's actions are part of a mosaic of competitive actions and responses taking place among a host of
companies seeking the same objective-superior performance. And evidence shows that the decisions firms make
about their interactions with competitors significantly affect their ability to earn above-average returns? Because
of this, firms seek to reach optimal decisions when considering how to compete against their rivals.

Competitive rivalry is the ongoing set of competitive actions and competitive responses that occur among firms
as they maneuver for an advantageous market position. Especially in highly competitive industries, firms
constantly jockey for advantage as they launch strategic actions and respond or react to rivals' moves. It is
important for those leading organizations to understand competitive rivalry because the reality is that some
firms learn how to outperform their competitors, meaning that competitive rivalry influences an individual firm's
ability to gain and sustain competitive advantages. Rivalry results from firms initiating their own competitive
actions and then responding to actions taken by competitors.
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
Competitive behavior is the set of competitive actions and responses a firm takes to build or defend its
competitive advantages and to improve its market position. As explained in the Opening Case, Google takes
many major actions to compete but also responds to rival's strategic action as exemplified by its Android Pay in
response to similar services offered by Apple and Samsung. Through competitive behavior, Google seeks to
successfully position itself relative to the five forces of competition (see Chapter 2) and to defend its current
competitive advantages while building advantages for the future (see Chapter 3).

Increasingly, competitors engage in competitive actions and responses in more than one market which can be
observed with Google and Apple and with Google and Amazon, for example." Firms competing against each
other in several product or geographic markets are engaged in multimarket competition." All competitive
behavior-that is, the total set of actions and responses taken by all firms competing within a market-is called
competitive dynamics. The relationships among all of these key concepts are shown in Figure 5.1.
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
This chapter focuses on competitive rivalry and competitive dynamics. A firm's strategies are dynamic in nature
because actions taken by one firm elicit responses from competitors that, in turn, typically result in responses
from the firm that took the initial action." For example, in recent years, cigarette manufacturers took actions to
introduce electronic cigarettes as a new product. Commonly called e-cigarettes, and with their health benefits
still unknown, this product is a battery-powered device that converts heated, nicotine-laced liquid into vapor. The
more prominent position in this market has been held by Lorillard, Inc., which is now merging with Reynolds
American to become an even more formidable competitor in this market and other tobacco product markets.
The other large tobacco product firm, Altria Group, introduced its MarkTen e-cigarette to compete with the other
major firms in this market. Additional competitive actions and responses among these firms and with
international cigarette manufacturers can be expected in the foreseeable future.

Competitive rivalries affect a firm's strategies, as a strategy's success is determined not only by the firm's initial
competitive actions but also by how well it anticipates competitors' responses to them and by how well the firm
anticipates and responds to its competitors' ini tial actions (also called attacks). Although competitive rivalry
affects all types of strategies (e.g., corporate-level, merger and acquisition, and international), its dominant
influence is on the firm's business-level strategy or strategies. Indeed, firms' actions and responses to those of
their rivals are part of the basic building blocks of business-level strategies.
DOES GOOGLE HAVE COMPETITION? DYNAMICS OF THE HIGH
TECHNOLOGY MARKETS
Business-level strategy is concerned with what the firm does to successfully use its core competencies in specific
product markets. In the global economy, competitive rivalry is intensifying, meaning that its effect on firms'
strategies is increasing. However, firms that develop and use effective business-level strategies tend to
outperform competitors in individual product markets, even when experiencing intense competitive rivalry.
5-1 A Model of Competitive Rivalry
Competitive rivalry evolves from the pattern of actions and responses as one firm's competitive actions have
noticeable effects on competitors, eliciting competitive responses from them.This pattern suggests that firms
are mutually interdependent, that they are affected by each other's actions and responses, and that marketplace
success is a function of both individual strategies and the consequences of their use.

Increasingly, executives recognize that competitive rivalry can have a major effect on the firm's financial
performance and market position. For example, research shows that intensified rivalry within an industry results
in decreased average profitability for the competing firms." Although Apple essentially created the smartphone
market in 2007 by launching the iPhone, some believe that Google's Android has rapidly reshaped the market, as
evidenced by the fact that nearly half of all smartphones shipped in 2012 ran on the Android platform. The
Opening Case explains how Google is creating the smartphone of the future which, when introduced, will likely
only increase its rivalry with Apple, Samsung, and other smartphone providers.

Figure 5.2 presents a straightforward model of competitive rivalry at the firm level; this type of rivalry is usually
dynamic and complex. The competitive actions and responses the firm takes are the foundation for successfully
building and using its capabilities and core competencies to gain an advantageous market position.
5-1 A Model of Competitive Rivalry
The model in Figure 5.2 presents the sequence of activities commonly involved in competition between a firm
and its competitors. Companies use this model to under stand how to predict a competitor's behavior and reduce
the uncertainty associated with it. Being able to predict competitors' actions and responses has a positive effect
on the firm's market position and its subsequent financial performance. The total of all the individual rivalries
modeled in Figure 5.2 that occur in a particular market reflect the competitive dynamics in that market.

The remainder of the chapter explains components of the model shown in Figure 5.2. We first describe market
commonality and resource similarity as the building blocks of a competitor analysis. Next, we discuss the effects
of three organizational characteristics awareness, motivation, and ability-on the firm's competitive behavior. We
then examine competitive rivalry between firms (interfirm rivalry). To do this, we explain the factors that affect
the likelihood a firm will take a competitive action and the factors that the likelihood a firm will respond to a
competitor’s action. In the chapter's final section, we turn our attention to competitive dynamics to describe how
market characteristics affect competitive rivalry in slow- cycle, fast-cycle, and standard-cycle market.
5-1 A Model of Competitive Rivalry
5-2 Competitor Analysis
As previously noted, a competitor analysis is the first step the firm takes to be able to predict the extent and
nature of its rivalry with each competitor. Competitor analysis are especially important when entering a foreign
market because firms doing so need to understand the local competition and foreign competitors currently
operating in the market. Without such analyses, they are less likely to be successful.

The number of markets in which firms compete against each other is called market commonality while the
similarity in their resources is called resource similarity (both terms will be discussed later). These two dimensions
of competition determine the extent to which firms are competitors. Firms with high market commonality and
highly similar resources are direct and mutually acknowledged competitors. The drivers of competitive behavior-
as well as factors influencing the likelihood that a competitor will initiate competitive actions and will respond to
its competitors actions-influence the intensity of rivalry.

In Chapter 2, we discussed competitor analysis as a technique firms use to understand their competitive
environment. Together, the general, industry, and competitive environments comprise the firm's external
environment. We also described how competitor analysis is used to help the firm understand its competitors. This
understanding results from studying competitors' future objectives, current strategies, assumptions, and
capabilities (see Figure 2.3 in Chapter 2). In this chapter, the discussion of competitor analysis is extended to
describe what firms study to be able to predict competitors' behavior in the form of their competitive actions and
responses. The discussions of competitor analysis in Chapter 2 and in this chapter are complementary in that
firms must first understand competitors (Chapter 2) before their competitive actions and responses can be
predicted (this chapter).
5-2 Competitor Analysis
Being able to accurately predict rivals' likely competitive actions and responses helps a firm avoid situations in
which it is unaware of competitors' objectives, strategies, assumptions and capabilities. Lacking the information
needed to predict these conditions for competitors creates competitive blind spots. Typically, competitive blind
spots find a firm being surprised by a competitor's actions, potentially resulting in negative outcomes.
Increasingly, members of a firm's board of directors are expected to use their knowledge and expertise about
other businesses and industry environments to help a firm avoid competitive blind spots.
5-2 Competitor Analysis
5-2a Market Commonality

Every industry is composed of various markets. The financial services industry has markets for insurance,
brokerage services, banks, and so forth. To concentrate on the needs of different, unique customer groups,
markets can be further subdivided. The insurance market could be broken into market segments (such as
commercial and consumer), product segments (such as health insurance and life insurance), and geo graphic
markets (such as Southeast Asia and Western Europe). In general, the capabilities that Internet technologies
generate help to shape the nature of industries' markets along with patterns of competition within those
industries. For example, according to a Procter and Gamble (P&G) official: Facebook is both a marketing and a
distribution channel, as P&G has worked to develop 'f-commerce' capabilities on its fan pages, fulfilled by
Amazon, which has become a top so retail account for Pampers, a disposable diaper product.

Competitors tend to agree about the different characteristics of individual markets that form an industry. For
example, in the transportation industry, the commercial air travel market differs from the ground transportation
market, which is served by such firms as YRC Worldwide (one of the largest, less-than-truckload-LTI-carriers in
North America and selected as Walmart's LTI. Carrier of the Year) and its major competitors Arkansas Best. Con-
way, Inc., and FedEx Freight.Although differences exist, many industries' markets are partially related in terms of
technologies used or core competencies needed to develop a competitive advantage. For example, although
railroads and truck ground transport compete in a different segment and can be substitutes, different types of
transportation companies need to provide reliable and timely service. Commercial air carriers such as Southwest.
5-2 Competitor Analysis
United, and Jet Blue must therefore develop service competencies to satisfy their passengers, while ground
transport companies such as YRC, railroads, and their major competitors must develop such competencies to
satisfy the needs of those using their services to ship goods.

Firms sometimes compete against each other in several markets, a condition called market commonality. More
formally, market commonality is concerned with the number of markets with which the firm and a competitor
are jointly involved and the degree of importance of the individual markets to each. Firms competing against one
another in several or many markets are said to be engaging in multimarket competition. Coca-Cola and PepsiCo
compete across a number of product markets (e.g., soft drinks, bottled water) as well as geographic markets
(throughout North America and in many other countries throughout the world). Airlines, chemicals,
pharmaceuticals, and consumer foods are examples of other industries with firms often competing against each
other in multiple markets. Firms competing in several of the same markets have the potential to respond to a
competitor's actions not only within the market in which a given set of actions are taken, but also in other
markets where they compete with the rival. This potential creates a complicated mosaic in which the competitive
actions or responses a firm takes in one market may be designed to affect the outcome of its rivalry with a
particular competitor in a second market. This potential complicates the rivalry between competitors. In fact,
research suggests that a firm with greater multimarket contact is less likely to initiate an attack, but more likely
to move (respond) aggressively when attacked. For instance, research in the computer industry found that "firms
respond to competitive attacks by introducing new products but do not use price as a retaliatory weapon." Thus
in general, multimarket competition reduces competitive rivalry, but some firms will still compete when the
potential rewards (e.g., potential market share gain) are high.
5-2 Competitor Analysis
5-2b Resource Similarity

Resource similarity is the extent to which the firm's tangible and intangible resources are comparable to a
competitor's in terms of both type and amount." Firms with similar types and amounts of resources are likely to
have similar strengths and weaknesses and use similar strategies on the basis of their strengths to pursue what
may be similar opportunities in the external environment.

"Resource similarity" describes part of the relationship between FedEx and United Parcel Service (UPS). These
companies compete in many of the same markets, and thus are also accurately described as having market
commonality. For example, these firms have similar types of truck and airplane fleets, similar levels of financial
capital, and rely on equally talented reservoirs of human capital along with sophisticated information technology
systems (resources). In addition to competing aggressively against each other in North America, the firms share
many other country markets in common. Thus, the rivalry between these two firms is intense.

When performing a competitor analysis, a firm analyzes each of its competitors with respect to market
commonality and resource similarity. The results of these analyses can be mapped for visual comparisons. In
Figure 5.3, we show different hypothetical intersec tions between the firm and individual competitors in terms of
market commonality and resource similarity. These intersections indicate the extent to which the firm and those
with which it compares itself are competitors. For example, the firm and its competitor displayed in quadrant I
have similar types and amounts of resources (ie., the two firms have a similar portfolio of resources).
5-2 Competitor Analysis
The firm and its competitor in quadrant 1 would use their similar resource portfolios to compete against each
other in many markets that are important to each. These conditions lead to the conclusion that the firms
modeled in quadrant I are direct and mutually acknowledged competitors.

In contrast, the firm and its competitor shown in quadrant III share few markets and have little similarity in their
resources, indicating that they aren't direct and mutually acknowledged competitors. Thus a small, local, family-
owned restaurant concentrating on selling "gourmet" hamburgers does not compete directly against
McDonald's. The mapping of competitive relationships is fluid as companies enter and exit markets and as rivals'
resources change in type and amount, meaning that the companies with which a given firm is a direct competitor
change over time.

Kellogg has held a dominant market position in cold cereal sales for a long time but its sales of cereals have
begun to decline as explained in the Strategic Focus. Its major competitors are responding better to the changes
in the market than Kellogg. Kellogg seems to be trying to force its products on the market rather than changing
its product lines to satisfy consumer needs. General Mills' purchase of Yoplait is positioning that firm to advance
in the newer breakfast food market. Kellogg's response appears to be weak and is likely to be ineffective.
Without major changes, Kellogg is likely to suffer additional decline.
5-2 Competitor Analysis
Does Kellogg Have the Tiger by the Tail or is it the
Reverse?
Kellogg Company has been the leading and largest cereal maker in the US market for some time. It once had 45
percent of the US cereal market. Thus, for a number of years, Kellogg was flying high with its Tony the Tiger
advertisements and its leading cereals of Frosted Flakes, Frosted Mini-Wheats, and Special K cereals, among
others. That is no longer the case especially with the changes in the breakfast food market in fact, cereal, which
at one time comprised approximately 38 percent of the breakfast foods in the United States, currently accounts
for about 28 percent of the breakfast food sales United States consumers are moving away from processed foods
and carbohydrates to fruit yogurt, and protein such as eggs for breakfast meals. As a result, Kellogg's sales of its
cereals are slumping, profits are slipping and its stock price is declin ing. A recent survey of analysts found that 90
percent recommended selling or putting a hold on Kellogg stock with only 10 percent recommending that
investors buy it.

In 2014, sales for 19 of Kellogg's top 25 cereals declined While other major cereal makers also struggled, General
Mills (eg. Cheerios. Lucky Charms) sales were 50 percent better than Kellogg's. And, Post's sales in 2014 even net
a two percent Increase. So, Kellogg's competitors seem to be weathering the crisis better than it is able to do. To
deal with the declining sales, Kellogg acquired Pringles for $2.7 billion. Yet, Pringles clearly represents processed
foods which the consumer is beginning to resist. Alternatively, General Mills acquired a controlling ownership
position in Yoplait, the second-largest manufacturer of yogurt in the world. This acquisition strengthened General
Mill's market position with the increasing demand for yogurt Kellogg is also trying to revive its Special K and
Kashi sales by adding fruit and other items. Some believe that these actions will generate few positive returns In
addition, Kellogg invests heavily in advertising with outlays of more than $1 billion annually.
Does Kellogg Have the Tiger by the Tail or is it the
Reverse?
Obviously, Kellogg is losing market share to its major rivals. in the cereal market, but it is also losing to other
firms that are providing different breakfast foods increasingly desired by the United States consumer, Kellogg's
breakfast cereal sales declined by 6 percent in 2014, and their outlook is not good. Yet, Kellogg is investing in
special advertising campaigns to encourage consumers to eat more cereal for breakfast. At one time, Kellogg
had an advantage because of its size; it could invest more resources in advertising and marketing in general,
thereby build ing relations with retailers (and consumers). Today, its large size appears to be hurting the firm.
Kellogg seems unable to make the major changes required to respond to the new demands in the breakfast food
market. Its competitors are responding more effectively, suggesting a dark future for Kellogg.