Back in August 2006, The Oxford English Dictionary updated its definitive record of the language with a new entry, adding “Google” as a verb, meaning to search the Internet. That put the firm in the exalted company of brands like Xerox, FedEx and TiVo, which also gave their names to the actions they invented.
Fast-forward to today and Google is stronger than ever in search. However, over the same period, it has a record of ups and downs as it has attempted to extend its dominance across the digital media and technology spectrum. Its ambitions, summed up in its mission to “organize the world’s content and make it universally accessible,” has led it in diverse directions, pitted against a host of competitors, ranging from digital giants like Microsoft to upstarts like Facebook, Twitter and even traditional media companies. In fact, Google dabbles in so many businesses, it’s hard to keep track of them all. Remember when Google jumped into the nascent in-game advertising space with the acquisition of Adscape Media? Or how about Google’s now-defunct answer to Second Life, Lively, which lasted all of four months?
Time and again, Google has had mixed success in establishing itself as a leader in today’s most promising areas of digital: social networking, mobile services and video advertising. It’s also involved in display and more traditional advertising. The established players in these segments see Google as a disruptive force with intentions to take over the world. Others just see the Web giant as a company with extremely deep pockets that can pretty much afford to experiment wherever it wants. “I think for better or worse Google has turned into a Microsoft knockoff,” says Mark Cuban, the founder of HDNet and owner of the Dallas Mavericks. “They do some brilliant things, fail at others and with some they slog along, subsidizing it till something clicks. Just as Microsoft generates ungodly amounts of cash from Windows, Office and corporate apps, Google creates boatloads of cash from search. They use that cash to mine other businesses and fight the battle of attrition.”
Indeed, Google’s Web search ad revenue still accounts for most of its $23.65 billion in revenue. A large part of the problem is the simple fact that, as recognized by the Oxford Dictionary’s editors, to many consumers and even advertisers, search is Google and Google is search.
The company remains determined to extend its ad dominance beyond search
By Brian Morrissey, Adweek
Google turned to display advertising as a natural extension of its search business. After all, the area seems ripe for the application of Google’s core strength of using technology to bring automation and efficiency to inefficient markets. One statistic that sums up the need for change: Administrative costs for a Web banner campaign eat up 28 percent of the spending v. just 2 percent in TV, according to ThinkEquity.
“We think about bringing the science of search to the art of display,” says Barry Salzman, head of media and platforms for the Americas at Google.
But that doesn’t mean Google always succeeds in its first try. Unlike search, where Google was in effect inventing a market, the display market was eight years old with a raft of strong incumbents when Google dipped its toe in 2002, first running its regular text links targeted to the keywords on a page and finally two years later running static banner ads. Over the years, the Google Content Network has evolved to include the type of display advertising commonly offered in the industry. Yet Google has failed to capture much of the market.
Its struggles can again be traced back to its search roots. Unlike in search, Google did not have a very good signal of user intent. There’s no search query to respond to from readers of a news article. Google’s attempts at contextual targeting have produced so-so results, while it has only slowly involved itself in behavioral targeting, recently adding remarketing capabilities.
Display advertising, however, is too big a market for Google to concede (search results pages, after all, are only 5 percent of the Web), so it made a pair of big bets to hike share. First it purchased YouTube for $1.65 billion in 2006, bringing it a flood of inventory that comes with one of the Web’s largest sites.
Then, in late 2007, Google inked a $3.2 billion deal for DoubleClick. In the two and a half years since the acquisition, Google has worked to rebuild DoubleClick’s underlying technology. It has developed the DoubleClick Ad Exchange, a leader in the move to making display advertising work more like search. With the ad exchange, advertisers can bid in real time for impressions that fit the audience criteria for their messages. This in turn increases the effectiveness of those ad placements.
As the owner of the largest exchange, with AdSense inventory traded on it, Google has a leading position in a marketplace that’s poised for strong growth.
In addition to DoubleClick, Google recently added dynamic ad generator Teracent, giving it the opportunity to offer a combined technology and media product to publishers and advertisers that allows display advertising to scale.
“The really exciting opportunity was to come to Google…to execute on the very early DoubleClick vision,” says Salzman, who was an executive at DoubleClick from 1997 to 2002. “That was about recognizing that the Internet was a medium that would deliver unprecedented media value only by integrating technology with that media offering.”
The company’s headlong drive to reinvent the display market to work more like search, with an auction to determine placements, has rubbed some in the agency world the wrong way. Even proponents of the exchange model fret that Google’s view of display advertising relegates agencies to lesser roles and leaves publishers at the mercy of advertisers skimming off the best of their audiences.
“I’m shocked at how arrogant they’ve become,” says an agency source. “I find it really scary. They have every intention of relegating agencies to just a strategy function.”
Google believes its efforts to streamline the online ad process will pay off for all involved by making the display ad market, worth $23 billion in the U.S. in 2009, a much larger sector. In the meantime, Google’s display ad business is expected by analysts to cross $1 billion in 2010. “Google’s overarching thought process is this has the potential to be a much bigger market than it is today,” Salzman says.
With Android, Google has made strides in a sector ripe for the type of organization it can offer
By Brian Morrissey, Adweek
If there’s a market made for Google to replicate its success in desktop search, it could be mobile. Unlike other areas Google has explored, mobile advertising is still a young market that’s only starting to show its potential. Until the recent popularity of smartphones, most U.S. cellphones were used for little more than calls and text messages. Thanks to the iPhone, they are now, in effect, minicomputers.
Google has scrambled to take advantage. At the Mobile World Congress in February, Google CEO Eric Schmidt declared the company now has a “mobile first” doctrine, meaning it designs all products with their mobile version in mind. In other words, mobile offers the perfect market for Google: fragmented and requiring a deep technology infrastructure.
Google is attacking mobile on several fronts. It has developed Android, a mobile operating system to rival the iPhone, and has even gone so far as to manufacture a handset, the Nexus One. In addition to its mobile search efforts, Google hopes to shore up its ad offerings with a $750 million deal for mobile ad network AdMob (which the Federal Trade Commission is reviewing and might hold up). It has rolled out new formats like click-to-call ads and recently put ads on the YouTube mobile site for the first time.
“Google very much wants to tie the online experience to the mobile experience,” explains Paul Palmieri, CEO of Millennial Media, an AdMob competitor. “In the mobile space, I think consumers are going to search less.”
Meanwhile, Apple has set its sights on Google with the rollout of its own ad network, dubbed iAd, which it promises will provide application developers a way to make money without alienating users. Clicking on iAd placements do not open a separate window, but instead provide a brand experience within the app environment. The move sets up Apple as a formidable competitor in the mobile ad space.
“I wouldn’t bet against them,” argues 360i’s Bryan Wiener of Google’s many forays beyond search. “They’re very smart, determined and have endless cash flow from search to fund any endeavor they choose. It reminds me of Microsoft in the 1990s.”
Without the science of search, the hottest digital realm has proved stubborn to crack
Brian Morrissey, Adweek
It was hailed as a coup. In August 2006, Google swooped in to ink a $900 million search and contextual advertising deal with MySpace and other News Corp. digital properties. At the time, Google was hailed for stealing another key deal, following its purchase of a piece of AOL (at a $20 billion valuation) from key competitors.
The MySpace agreement would come to symbolize Google’s frustrations with trying to make sense of social media. The problem it faced was similar to those in other nonsearch areas: Social media doesn’t provide a quick-and-easy intent signal to match with advertising.
Google relied on its regular algorithmic efforts, such as matching search ads to keywords and doing contextual targeting. But MySpace users were on the site to socialize, not search for products—a fact admitted by none other than Google CEO Eric Schmidt in 2008. Its pages are littered with ephemera rather than strong commercial intent data. MySpace soon began its decline relative to rival Facebook. Google took a bath on the deal, which expires in June.
Indeed, the search giant has had a string of ham-handed efforts in building its own social media properties. Its own social network, Orkut, which rolled out in January 2004, has failed to catch on in the U.S. or most major markets—though it boasts a sizable following in Brazil. Seeing the early success of Twitter, it moved in 2007 to acquire a competitor, Jaiku, which quickly faded into irrelevance. It followed the brief excitement with Second Life with a virtual world platform called Lively that it shut down six months later.
Finally, this past February, it rolled out a social network of sorts within Gmail, called Google Buzz. The idea was sound: create a hub for people’s growing list of social media feeds. Unfortunately, Google bungled the privacy side, automatically linking people to those they e-mail—and exposing those connections to the world. It moved to fix the problem but not before drawing the attention of federal regulators concerned about the risk to consumer privacy in the emerging social infrastructure.
Google’s difficulties in social media can be traced to consumers viewing it as a search provider, says Dave Yovanno, CEO of social tech company Gigya. “If you’re seen as search, that’s the bucket you fall into,” he says. Google solved the problem of monetizing search with the brute force of a huge technology infrastructure. The privacy furor over Buzz to many betrayed Google’s engineering orientation trumping understanding of human behavior.
“Social is about creating a platform for consumers to interact with other consumers and for brands to foster a meaningful relationship with customers,” says Bryan Wiener, CEO of New York digital shop 360i. “That’s inherently a customized approach rather than an automated approach.”
One of the bigger disappointments, selling TV, radio and print space still taught valuable lessons
By Mike Shields
Back in 2006, Google entered two of the more troubled sectors of traditional media: print and radio. By the next year, the company was going after a piece of the $60 billion TV market. Some welcomed the technology-driven buying efficiency and targeting capabilities Google brought forth. But many execs feared Google was set to destroy—or worse, take over—old-school media as we know it.
Today, Google is out of print and radio completely, and remains a minor player in TV. So what happened? Did a bunch of naïve engineers miscalculate how much impact they could have on a business still driven by lunch meetings? Did they blow it on execution? Or did Google just make a noble attempt at innovation and come up short?
“We are a company that experiments all the time,” says Mike Steib, Google’s director, emerging platforms and TV ads. “It really isn’t Dr. Evil thinking about ways we can own the radio. It’s not like that. All these things start out as, ‘We think these are good ideas, and we think we can bring some value.'”
While some radio and print execs are privately happy that Google bailed out of their industries, one insider familiar with both businesses defended the efforts. “[Former Google sales chief] Tim Armstrong deserves a lot of credit,” says the exec, commenting on condition of anonymity. “He was trying to respond to customers.”
What Armstrong was hearing from search advertisers was that traditional media could stand to be a lot more Web-like in terms of measurement and efficiency.
“Where Google has been brilliant and done a better job than Microsoft in positioning for the future is in identifying and attacking inefficient markets,” echoes HDNet founder Mark Cuban. “Radio and TV sales were one example where to date they haven’t been able to get traction, but the concept was right on.”
What got Google in the end was moving too fast in print and radio before figuring out whether it could definitely improve those businesses’ process. And it let expectations spiral out of control, says the insider. “Everything the company does gets compared to its [multi-] billion-dollar search business. Nothing is going to look good.”
In the case of print, tracking ad effectiveness by viewing lifts in search traffic or unique URLs proved unreliable. “At the end of the day, our technology didn’t help make those things happen more effectively than a phone call,” explains Steib, who adds that the issues were similar in radio. “We weren’t able to bring value there. We really gave it a college try…but we dropped the class.”
That effort was not for naught, argues Steib, since Google is planning to incorporate its radio tools and processes for a major push into online audio ads.
As for TV, many dismiss Google’s efforts as minor to date. Not helping matters: Buyers detest the word “auction,” which fills them with paranoia. Yet while Google TV isn’t replacing the upfront, Steib remains bullish, pointing to the thousand-plus advertisers that employed the platform, delivering 100 billion-plus impressions to date.
And with an addressable TV world coming, with “billions of ad permutations possible,” per Steib, Google stands to play a key role—considering that TV networks are still relying on decades-old sales processes. Says Steib: “We believe that every TV audience is worth something different to every advertiser, and our technology can unlock that.”
Ad-challenged UGC mecca YouTube is getting a second look from marketers
By Mike Shields
YouTube reaches more than 108 million unique users per month, according to Nielsen Online. Per comScore, Google sites delivered 13 billion views last December, about 13 times as many as the No. 2 site—Hulu—streamed.
Is there any universe where those sorts of numbers wouldn’t qualify as an unparalleled success? Undoubtedly, in terms of reach, cultural influence and viral power, YouTube can’t be touched. But it’s that all-important business side of things where things get iffy.
Not long ago, YouTube was viewed as a user-generated content haven that advertisers would never touch. Analysts quickly began to see it as a bandwidth-sucking, money-losing albatross.
But over the past few months many analysts changed their tune. In January, Barclays Capital projected that YouTube would generate $700 million this year and begin contributing to Google’s earnings per share.
Word inside Google is that while at one time executives worried over how to monetize the site’s billions of views, they don’t anymore. According to Carl Fremont, evp, global media director at Digitas, at some point, Google decided to pursue ad-sales strategies that went beyond trying to monetize all of YouTube’s video inventory, one that included allowing brands to host their own channels. But the most effective tactic has been creating inventory around videos rather than in them. “What they did was say, ‘Let’s look for the white space on YouTube and create inventory,'” Fremont says—especially on the homepage.
Buyers say that YouTube can fetch around $300,000 for a 24-hour homepage sponsorship (that’s about $110 million over 365 days), as Google has made major inroads by selling YouTube as a reach firehose. “They can deliver an audience that is three or four times that of the Super Bowl,” says Steve Minichini, president, interactive marketing at TargetCast tcm. “Think about that.”
Google has also used piracy to its advantage—by helping traditional media companies attach ads to user-uploaded, copyrighted material. “That was very, very smart,” says Mark Cuban, the founder of HDNet and owner of the Dallas Mavericks.
YouTube is also able to cash in on user-generated videos that contain copyright-protected songs, like the viral smash J K Wedding Dance. However, in the minds of many observers, YouTube hasn’t yet reached its full potential. Though Google downplays the need to better cash in on its billions of UGC views, Fremont doesn’t buy it. “They desperately want to figure that out,” he says.
Plus, traditional brands, such as autos and packaged-goods advertisers, still favor premium, long-form, professional content on their Web. Fair or not, YouTube is still not viewed as a place to shift TV money.
“Their biggest problem is expanding beyond 10-minute clips,” says Cuban. “The cost gets expensive, and I don’t think that for the next few years content owners will give them their best long-form content in hopes of getting enough ad revenue to cover the cost…And of course there is that pesky Viacom lawsuit. It wouldn’t shock me to see a billion-dollar-plus settlement. Expensive, but now just a cost of doing business.”