Reference no: EM132187525

If you ask a group of students to name a successful company, Google is likely to be one of the first firms mentioned. It dominates online search and advertising, has developed a successful browser, and developed the operating system that powers 75 percent of the smartphones sold in 2012.1 Its success is evident in its stock price, which rose from about $350 at the beginning of 2009 to near $800 a share in early 2013. But that doesn't mean that Google has been successful at all it has tried. One of Google's most notable failures occurred when it tried to venture outside the online and wireless markets. In 2006, Google decided to expand its advertising business to radio advertising. After spending several hundred million dollars on their entrepreneurial effort in the radio advertising market, Google pulled the plug on this business in 2009.

Google saw great potential in applying its business model to the radio advertising industry. In the traditional radio advertising model, companies that wished to advertise their products and services contracted with an advertising agency to develop a set of radio spots (commercials). They then bought blocks of advertising time from radio stations. Advertisers paid based on the number of listeners on each station. Google believed that they could develop a stronger model. Their design was to purchase large blocks of advertising time from stations. They would then sell the time in a competitive auction to companies who wished to advertise. Google believed they could sell ad time to advertisers at a higher rate if they could identify what ads on what stations had the greatest impact for advertisers. Thus, rather than charging based on audience size, Google would follow the model they used on the Web and charge based on ad effectiveness. To develop the competency to measure ad effectiveness, Google purchased dMarc, a company that developed technology to manage and measure radio ads, for $102 million.

Google's overall vision was even broader. They also planned to enter print and TV advertising. They could then provide a "dashboard" to marketing executives at firms that would provide information on the effectiveness of advertising on the Web, TV, print, and radio. Google would then sell them a range of advertising space among all four to maximize a firm's ad expenditures.

However, Google found that their attempt to innovate the radio market bumped up against two core challenges. First, the radio advertising model was based much more on relationships than online advertising was. Radio stations, advertising firms, and advertising agencies had long-standing relationships that limited Google's ability to break into the market. In fact, few radio stations were willing to sell advertising time to Google. Also, advertising agencies saw Google as a threat to their business model and were unwilling to buy time from Google. Second, Google found that their ability to measure the effectiveness of radio ads was limited. Unlike online markets, where they could measure if people clicked on ads, they found it difficult to measure whether listeners responded to ads. They tried ads that mentioned specific websites that listeners could go to, but they found few people accessed these sites. In the end, Google was able to sell radio time at only a fraction of what radio stations could get from working their traditional advertising deals. This led stations to abandon Google's radio business.

Google found that they had the initiative to innovate the radio market, but they didn't have the knowledge, experience, or social connections needed to win in this market.

Discussion Questions

1. Why didn't the lessons Google learned in the online advertising market apply to the radio market?

2. Radio is increasingly moving to satellite and streaming systems. Is this a new opportunity for Google, or should they steer clear of radio altogether?

Managing change is one of the most important functions performed by strategic leaders. There are two major avenues through which companies can expand or improve their business-innovation and corporate entrepreneurship. These two activities go hand-in-hand because they both have similar aims. The first is strategic renewal. Innovations help an organization stay fresh and reinvent itself as conditions in the business environment change. This is why managing innovation is such an important strategic implementation issue. The second is the pursuit of venture opportunities. Innovative breakthroughs, as well as new product concepts, evolving technologies, and shifting demand, create opportunities for corporate venturing. In this chapter we will explore these topics-how change and innovation can stimulate strategic renewal and foster corporate entrepreneurship.