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New Product Development (Google)

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Google
                                                                          Whistle

Prepared for: Kapil R. Tuli, Pro...
Executive Summary
Google is poised to introduce a wholly new product in the internet industry by integrating
physical attr...
In terms of advertising sales, Facebook is forecasted to increase by 678% to US$5.74 billion
worldwide in 20123 . Google’s...
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New Product Development (Google)

Slides from project that i did in university for a course called New Product Development. This project showcases my ability to product creative strategies and ideas for a company and improve on its existing portfolio and brand.

Slides from project that i did in university for a course called New Product Development. This project showcases my ability to product creative strategies and ideas for a company and improve on its existing portfolio and brand.

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New Product Development (Google)

  1. 1. Google Whistle Prepared for: Kapil R. Tuli, Professor for MKTG215 New Product Development, G3 Prepared by: Freda Luo, S8938889I, Student of SMU April 5, 2011
  2. 2. Executive Summary Google is poised to introduce a wholly new product in the internet industry by integrating physical attributes in a virtual channel. Google Whistle offers both consumers and businesses a social media platform to connect with an even larger pool of people and an alternative targeting method respectively. With the mobile internet industry growing at an incremental rate, Google could tap on this increasing trend at an early stage and acquire a high market penetration at an early stage through its brand equity just as the social media industry approaches a saturation point. In terms of advertising sales revenue, Facebook poses a threat a Google with a predicted 678% increment in in 2012. With a similar advertising service, Google needs to offer additional value to marketers to retain it’s market leadership. By targeting US businesses, a moderate estimation of the project would require an approximate initial investment of US$36.6 million to obtain an NPV of US$235 million with IRR at 193%. Industry Overview The use of social media has been on the rise since it was first introduced in 1997. On average, ! of the global internet users base accesses social networks or blog and there has been a 66% increase in the total amount of time spent on these channels from almost 6 hours in 2010 to 3 hours, 31 minutes in 2009.1 In 2010, social media penetration generally increased across major countries. Even though US is the largest absolute social media market, close to 80% of Facebook users reside outside the country. The use of social media is mainly dominated by youths aged 18 to 24, and usage decreases as age increases.2 Competitive Analysis As evident from Exhibit 2, the US market is largely dominated by 2 social networking sites, Facebook and Youtube, in terms of total site visits, making Facebook Google’s greatest competitor by market penetration. Both Facebook and Google generate the bulk of their revenues from internet advertising sales. Through targeting filters, Facebook could match advertisements to users according to personal particulars as indicated on their profile pages. Similarly, Google employs a targeting technique by matching advertisements to keyword searches, and an extremely controversial method of tracking users’ web browsing behavior through cookies. The Gap Analysis of various internet companies in Exhibit 3 shows a distinct void in the top right hand corner of the chart, creating a viable market for Google to enter.
  3. 3. In terms of advertising sales, Facebook is forecasted to increase by 678% to US$5.74 billion worldwide in 20123 . Google’s a In order to remain competitive amidst growing competitors such as Facebook and Twitter, Google needs to create a new product that offers a new user experience for both consumers and businesses alike. Opportunities Increasing number of smartphone and mobile data users According to the Cisco Visual Networking Index (VNI), smartphone penetration worldwide will experience a rise from 10% in 2010 to 17% in 2014. North America will achieve the highest smartphone penetration from 33% in 2010 to 54% in 2014.4 Similarly Parks Associates analysts forecasted data revenues for global mobile carriers will increase by approximately 40.8% from 2010 to 2015.5 Essentially, mobile internet activity will experience growth over the next 4 years, creating a viable market for Google to target in the near future. Increasing business activity on Social Media The 2 most commonly used social media tools for marketers are Twitter and Facebook. Research shows that marketers in general are keen on investing more in the use of social media channels in future, with at least 67% planning to increase activity on their blogs, Facebook, YouTube, Twitter and Linkedln pages.6 With a positive outlook of the social media industry amongst businesses, Google would benefit greatly by having a significant and credible brand heading the increasing trend. Product Description With vast opportunities in the market, Google should implement a new social media channel that incorporates the use of internet-on-the-go and a new user experience that could excite the consumers. The introduction of Google Whistle (GW) marks Google’s entrance into the growing mobile internet market using existing Google tools such as Google Search Engine, Google Trends, GMail, Google Maps, etc. GW should ideally create a one- stop mobile application that consolidates all Google’s mobile tools into one, while at the same time incorporating them in a fresh medium. GW comes in the form of a social media channel that allows users to connect with people in the same network.
  4. 4. However instead of posting them onto a friends-only portal like Facebook and Twitter, GW allows to connect to anyone in the same geographical proximity, but on a virtual space. Some main features available on GW are Direct Message, Whistle, Paste and Trendspotting (Exhibit 1). Value Proposition Complementary Product to Google Search Engine To prevent cannibalization, GW should act as a complementary product to the Google Search Engine instead of an independent service. In a study conducted by BIGresearch, Face-to-Face Communication ranks the highest amongst other channels such as internet advertising and social networking sites as the most influential medium to trigger an online search. 41.4% of social media users rank personal recommendations and conversations as the most influential reason for them to run an online search for products, events, etc.7 GW acts as a channel to break social barriers for strangers who are located in the same physical space, but whom society does not permit to speak freely with each other. Eventually with GW, more people will engage in face-to-face communication hence higher internet searches. Google will benefit most from this change as it currently stands as the number one online visited brand at 82% of the world’s internet population, and also through brand association and direct links on the application to Google Search Engine. Encourage community sharing amongst Users GW gives users an alternative option of communicating with others in the same geographical proximity. With a more convenient and subtle channel to communicate via technology, community sharing could be done instantly with little effort. Generally GW offers an option of communicating freely with strangers instead of being constrained to their network of online friends. Through this new offering, GW would be able to attract a new consumer base and offer marketers an alternative medium for advertising. Google Whistle to Businesses Businesses could target consumers based on a similar word-recognition technology as Google AdWords. Based on the webpages visited by users when logged into their GMail account, marketers could have access to psychographic and behavioral data of these users through their Google searches. GPS tracking service would be linked to the IP address of the user’s mobile device, allowing marketers to track their foot activity when logged into the application via their business account. These services are not previously available on social networking websites such as Facebook and Twitter.
  5. 5. Additional Value to Businesses: • Since GW provides instantaneous updates, consumers have more incentive to spend more time on GW as compared to other social networks. • Alternative promotional strategy: Allows businesses to connect with their consumers easily in the physical world, complementing their use of social network channels such as Facebook and Twitter. By creating a link between virtual and physical, marketers could capitalize on this alternative medium to create creative campaigns. • Allows marketers to track the coverage of their social media campaigns or target specific consumers via informal conversations on GW through keyword search similar to AdWords. Marketers could, for example, track the number of people or deliver promotional tools to consumers who mentions a certain keyword. Marketing Strategy Consumers GW would be positioned as ‘The Only application a smartphone user will ever need’ to stay connected and informed of movement in trends on an instantaneous basis. It focuses on a “no limitations” style of connectivity as users could connect with virtually anyone in the same geographical location regardless if they are “friends” or not. Usage and downloads of the application will be free-of-charge to consumers to encourage membership. Businesses GW would be positioned as a alternative social media channel to complement a company’s current online advertising strategy by offering geographical coverage online. GW offers marketers a more proactive marketing strategy by allowing businesses to giving an alternative outlet to unleash their creativity through promotional campaigns. Firms will be charged solely on a pay-per-click and per-Whistle basis as variable costing offers justification of their Return on Marketing Investment (ROMI) (Figure 1). Product Launch GW will first be rolled out in the US as a market test, followed by North America, Western Europe, and APAC, which are forecasted to make up approximately 80% of global mobile data consumption in 20138. Product deliverables will be applications on iPhone, Blackberry and Android phones, as well as an additional page linked from Google’s main webpage. Promotion of this application would be done through cost effective online mediums such as a product video on YouTube, direct promotional emailers to all GMail account users and a customized GW Logo to replace all Google homepage logos for 2 months following a local launch.
  6. 6. Financials Financial data for GW is forecasted based on an initial launch in US only. Revenue for GW will be contributed from revenue generated by ad sales. Hence, our primary target audience for GW will be businesses in US. Figure 5 shows the estimated number of Whistles posted by firms and number of clicks generated by consumers, with SMEs generating lower revenue as compared to large companies. The ATAR model in Figure 2 gives a prediction of the potential number of businesses to adopt GW upon launch in 2014. Figure 3 projects the market size for GW, which is the number of businesses as stated in the US census data. As GW is capitalizing on existing Google infrastructure, the initial startup cost would only include development of mobile applications, website and OS for the program. An R&D cost of US$20 million would also be incurred prior to launch. As shown in Figure 6, with an initial investment of US$36.6 million, GW is expected to generate an NPV of approximately US$235 million from 2014 to 2017 with an IRR of 193%. These estimations are based on the assumption that the economic outlook is relatively positive as companies are stated to recover from the 2008 financial crisis, and are hence more willing to increase advertising budgets. In the case where business confidence is lower than expected, GW will still generate an NPV of US$89 million at 80% IRR. In the worse case scenario where businesses are unwilling to widen their marketing expenditure, GW will nevertheless generate a positive NPV at US$36 million at 21% IRR. Conclusion With GW, Google could potentially tap into the growing mobile market by having a new take on social media. The application integrates many aspects of Google’s existing services and use them to create a new all-rounded experience for mobile internet users. With Google’s high brand equity and the lack of direct product competition, the launch of GW would require less but still attain high consumer membership. With US emerging fresh out from the economic downturn, businesses could be predicted to be more receptive to alternative marketing channels. Finally, a US launch in 2014 would generate an optimistic NPV of US$235 million with IRR at 193%.
  7. 7. Appendices Figure 1: Google Whistle Advertising Charges for Business Accounts How are companies Amount Description charged? Per Whistle 0.2 For every Whistle a company posts on to GW, 20 cents will be charged to it's account. Per-Click 0.05 Whenever a consumer clicks on a company's Whistle and is directed to another page, 5 cents will be charged to the company's account. Per Account 0 A business account is free-of-charge to set up. Figure 2: ATAR Model for Google Whistle ATAR % Assumptions Awareness 0.72 Market penetration of Google Search Engine. Since promotion of GW is done on Google's main page, the assumption is that for all who uses the search engine would be aware of GW. Google share of searches at 72% in 2010 according to Experian Hitwise. Trial 0.186 According to the Social Marketing Report, 57% of businesses in US are B2B while 43% are B2C. With 70% of local businesses utilizing Facebook in US, a reasonable assumption for trial given Google's high brand credibility in terms of online advertising services for B2B companies would be 10%, and 30% for B2C companies. Availability 0.7 Assuming that 70% of firms listed in on the US census have access to the internet. Repurchase 0 Repurchase doesn’t apply. Total Market Size (No. of Businesses in US) = 33,211,584 ATAR = 0.0937 Projected No. of adoptions of GW = 3,113,387 Figure 3: Market Size of Google Whistle to Businesses in US Employment Number of Firms Definition from ICC None 27,281,452 Micro 1 to 9 4,661,829 Micro 10 to 99 1,159,448 Small 100 to 499 90,386 Medium 500 to 4999 16,513 Large 5000 or more 1,956 Large * Source: US Census Data 2008. http://www.census.gov/econ/smallbus.html
  8. 8. Figure 4: Developmental Startup cost for Google Whistle Google Whistle Startup Cost Cost Apps for iPhone, Blackberry and Android $600,000.00 Coding for Website $1,000,000.00 Development of OS $10,000,000.00 Total $11,600,000.00 Assumption Cost to code "Twitterific" app on iPhone is $200,000. Assume that cost of coding all 3 handsets are similar. Figure 5: Yearly Estimates for 2014 to 2017 of various statistics Assumed Growth Number of Number of clicks Type Number of Firms Rate whistles per firm per Whistle Micro Business 31,943,281 0.1 26 5 Small businesses 1,159,448 0.1 52 20 Medium 90,386 0.05 365 50 businesses Large businesses 18,469 0.05 730 100 2014 2015 2016 2017 ATAR 0.093744 0.113688036 0.137875166 0.167208107 Number of Micro firms using GW 5304923 7076900 9440762 12594213 Number of Small firms using GW 192553 256871 342672 457133 Number of Medium firms using 11355 14459 18412 23446 GW Number of Large firms using GW 2320 2954 3762 4791 Number of Whistles 153779023 204791044 272745572 363275369 Number of Clicks 1266494499 1666699297 2194339419 2890274667 Assumption ATAR is estimated to increase with awareness stated to increase by 5%, trial by 10% and availability by 5% annually.
  9. 9. Figure 6: Calculations for NPV based on 3 scenarios Scenario 1: Optimistic 2011-2013 2014 2015 2016 2017 Revenue Revenue from Whistles $30,755,804.57 $40,958,208.85 $54,549,114.49 $72,655,073.74 Revenue from Clicks $63,324,724.93 $83,334,964.85 $109,716,970.95 $144,513,733.37 Total Revenue $- $94,080,529.50 $124,293,173.70 $164,266,085.44 $217,168,807.11 Variable Cost R&D $20,000,000.00 $9,408,052.95 $12,429,317.37 $16,426,608.54 $21,716,880.71 Site and App maintenance $- $18,816,105.90 $24,858,634.74 $32,853,217.09 $43,433,761.42 Fixed Cost Site and App Startup cost $11,600,000.00 $- $- $- $- Selling/General/Admin $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00 Expenses Total Operating Expense $36,600,000.00 $33,224,158.85 $42,287,952.11 $54,279,825.63 $70,150,642.13 Net Operating Income -$36,600,000.00 $60,856,370.65 $82,005,221.59 $109,986,259.81 $147,018,164.98 Annual Discount Rate 0.2141 NPV $234,878,512.59 IRR 193%
  10. 10. Scenario 2: Moderate 2011-2013 2014 2015 2016 2017 Revenue Revenue from Whistles $12,348,990.88 $14,807,423.99 $17,756,940.64 $21,295,884.23 Revenue from Clicks $28,453,882.97 $33,677,694.47 $39,879,333.60 $47,244,872.30 Total Revenue $- $40,802,873.85 $48,485,118.46 $57,636,274.24 $68,540,756.54 Variable Cost R&D $20,000,000.00 $4,080,287.39 $4,848,511.85 $5,763,627.42 $6,854,075.65 Site and App maintenance $- $4,896,344.86 $5,818,214.21 $6,916,352.91 $8,224,890.78 Fixed Cost Site and App Startup cost $11,600,000.00 $- $- $- $- Selling/General/Admin $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00 Expenses Total Operating Expense $36,600,000.00 $13,976,632.25 $15,666,726.06 $17,679,980.33 $20,078,966.44 Net Operating Income -$36,600,000.00 $26,826,241.60 $32,818,392.40 $39,956,293.91 $48,461,790.10 Annual Discount Rate 0.2141 NPV $88,990,346.29 IRR 80%
  11. 11. Scenario 3: Pessimistic 2011-2013 2014 2015 2016 2017 Revenue Revenue from Whistles $6,179,285.18 $7,264,639.62 $8,541,440.21 $10,043,558.67 Revenue from Clicks $14,098,298.18 $16,365,612.25 $19,006,427.48 $22,083,496.81 Total Revenue $- $20,277,583.36 $23,630,251.87 $27,547,867.69 $32,127,055.48 Variable Cost R&D $20,000,000.00 $2,027,758.34 $2,363,025.19 $2,754,786.77 $3,212,705.55 Site and App maintenance $- $2,433,310.00 $2,835,630.22 $3,305,744.12 $3,855,246.66 Fixed Cost Site and App Startup cost $11,600,000.00 $- $- $- $- Selling/General/Admin $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00 $5,000,000.00 Expenses Total Operating Expense $36,600,000.00 $9,461,068.34 $10,198,655.41 $11,060,530.89 $12,067,952.21 Net Operating Income -$36,600,000.00 $10,816,515.02 $13,431,596.46 $16,487,336.80 $20,059,103.27 Annual Discount Rate 0.2141 NPV $36,465,845.14 IRR 21%
  12. 12. Assumptions Assuming that R&D requires a duration of 2 years, coding and setup for 1 year, GW could be launched in 2014. Annual Discount Rate of Google Inc. is 21.41% as quoted from Reuters R&D cost is 10% of Revenue as the amount of R&D is dependent on app usage. Site and App maintenance is 20% of revenue. Growth rates of number of businesses on an annual basis is estimated assuming that the economy is recovering from the 2008 Financial Crisis.
  13. 13. Exhibit 1 Description of Main Google Whistle Functions Users first log into Google Whisper via their GMail accounts and a green dot would be superimposed on a Google Maps page that marks the location of the user. Through the wireless 3G network, GW could track their instantaneous locations, similar to technology used by Assisted GPS navigation technology. Other users in the network could appear as red dots. A web version of GW would also be available to computer users and they could similarly log in via their GMail account. Direct Message The direct message function allows the transfer of private messages from one user to another without and these messages are unaccessible to other people in the same network. There is no limitation on the number of characters contained in a single direct message, and to whom the message is being sent to. Whistle This Whistle function allows users to post short exclamations that can be viewed by people in the same network. Users could comment on each o t h e r ’s
  14. 14. exclamations and create a conversation with other users nearby. Whistles are limited to only 20 words per post regardless of the number of characters to keep messages short and prevent congestion on the navigation page. Each Whistle would only appear for 10 minutes per post to increase rate of return to the application. Paste The Paste function allows users to tag photos onto geographical spots on the map, and they will remain stationery regardless where the photographer is. They will appear as camera icons on the map and when clicked on, photos would be enlarged from them. By default, these icons will remain on the map for 30 minutes. Users could choose to comment on these photos, increase or decrease the amount of time this photo remains on the map to prevent inappropriate or spam photos. Trendspotting The Trendspotting function shows users where an abnormally large group of people are congregating. This will be shown on the sidebar of the screen, depicting the number of people who are currently in the stated area. By clicking on “Trendspot me here”, users will be directed to the area on the map, coupled with navigational instructions.
  15. 15. Exhibit 2: Market share of Social Networking sites by volume of visits
  16. 16. Exhibit 3: Gap Analysis of various Internet Companies
  17. 17. End Notes 1 Based on a global survey conducted in 9 major countries. Source: The Nelson Company. Jun 2010. 2 Ofcom International Communications Market Report 2010. Eurmonitor International. Web. 2010. 3 Facebook Ad Revenues, 2009-2012. eMarketer, Jan 2011. 4 Singh,S. Smartphone Penetration Worldwide, by Region and Country 2009-2014. eMarketer. Jun 2010. 5 Mobile Data: Analysis and Forecasts. 2011 Park Associates. 6 2010 Social Media Marketing Industry Report. SocialMediaExaminer.com. 7Social Media: An inside look at the people who use it. Retail Advertising & Marketing Association of the National Retail Federation. 2010. 8 The Future of the Internet. Datamonitor 360. Published by Business Insighs on 23 Feb 2011.

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