Google Flex

If there’s one essential truth to Google, it may be this: Never has such a simple interface hidden such an extraordinarily complex array of dreams.

In keeping with its mission “to organize the world’s information and make it universally accessible and useful,” it is in the midst of unleashing a formidable stream of new products, including Gmail, Google Earth, Google Video and Google Desktop. Many currently exist only in beta, but when one looks at the breathtaking scope of what Google is trying to provide consumers—from the mapping of the world available through Google Earth to Gmail, which aims to give its members free e-mail with unlimited storage—it’s clear that even if many of these products never fully launch, Google is a company with great expectations, and perhaps one of the most ambitious in modern business.

Make no mistake: That ambition also extends to advertising, which, given Google’s 50 percent share of all online ad revenue, portends very big plans indeed. What Google, speaking with its $6.1 billion in 2005 revenue behind it, really wants to do is take its current automated, auction-based advertising program, AdWords, and use it as the basis of a model that would change the way advertising is transacted. (See sidebar.) In the company’s view, it’s not just the less-than-accurate targeting, the kludgy buying process and the fuzzy analytics of most current advertising models that leave much to be desired; it’s how marketers go about allocating their money, prebudgeting way too far in advance and making decisions that aren’t necessarily based on ROI.

To work at Google is to dream big. So this isn’t just about refining current models, it’s about the whole enchilada. “In our minds, there really isn’t a difference between online and offline,” says Tim Armstrong, vp, advertising sales.

Thus, Mountain View, Calif.-based Google has also begun its march into offline advertising, garnering the most headlines with its January acquisition of dMarc Broadcasting, a Newport Beach, Calif.-based company that provides automation—and potentially an auction model—to radio buying. It has also conducted tests of selling print advertising, the most recent being a February auction of pages in prominent magazines. Yes, TV is next, the company says.

And in case you’ve been reading too many headlines about Google as 800 lb. gorilla, it says it wants do all this as a partner to the industry, not a parent. According to Armstrong, the company believes its mission in the ad business as “to basically keep the ecosystem moving.” And that means being one of a number of players who can help make the advertising marketplace become more efficient, more targeted and more accountable. While that’s a relatively simple statement, like the Google interface itself, it hides a complex story, but one that anyone currently in the advertising, media and marketing industries probably needs to hear.

Google advertising, defined

First things first: Talking to an ad sales executive at Google isn’t like talking to the publisher of a major consumer magazine or the head of sales for a broadcast network. It’s more like talking to an idealist who just happens to work in financial markets. So, much of an interview with Google’s Armstrong hinges on asset management and knowledge management, two concepts the company says could transform the ad industry from beleaguered to being firmly in control of its destiny.

What is “asset management?” Though the term is commonly used in financial circles, in advertising it would allow advertisers to reallocate their advertising resources quickly, with the help of technology, based on marketplace conditions. Because of the inefficiencies and costs of how most advertising is executed today, and because it doesn’t provide metrics as strong as the click-through in search, advertisers put most of their money behind a small percentage of their products.

Armstrong trots out the theoretical example of Dell. “They use servers and laptops to tell the whole Dell story,” he says. Using asset management, advertisers should be able to allocate resources more efficiently and quickly behind the right products at the right time.

First, creative assets would need to be digitized so that a company like Dell could have thousands of marketing messages at the ready. Then, instead of having to stick with planning and budgeting that was determined months in advance, advertisers could use the knowledge they’ve gained from their own campaigns, from Google and from the marketplace to redeploy resources as needed. (Google does not share information concerning individual advertisers with other companies.)

Google isn’t just talking about search advertising here. “In our mind, asset management is the new advertising,” Armstrong says.

Under these conditions, the advertising budget would be “always on” instead of fixed. If there was a production problem with the iPod, ratcheting up interest in the Dell DJ Ditty MP3 player might be warranted, so moving dollars could happen instantaneously to take advantage of the situation. “Users don’t run in budgetary cycles,” Armstrong observes. The ability to measure ROI in real time is central to the second-by-second decision making.

The question is whether the advertising marketplace is ready for this. “Clients typically don’t make those changes in real time,” says Cory Treffiletti, svp/engagement architect at Aegis Group’s Carat Fusion and a member of Google’s agency council, which serves as a sounding board for Google as it continually evolves its advertising program.

Nonetheless, Google sees this as the beginning of the ad biz’s age of empowerment. Asset management and knowledge management go hand-in-hand. The knowledge advertisers gain by running increasingly trackable advertising makes for better decisions, and an ever more valuable feedback loop begins to kick in. Advertising truly becomes an investment, and more advertisers advertise.

A number of Pollyannish thoughts might come to mind in hearing all this: that this kind of model could finally make obsolete that old John Wanamaker quote about not knowing which half of the ad budget is working. If a model like Google’s could become the predominant way of doing business, “the ad industry itself would be much bigger and much stronger,” Armstrong says.

Theoretically, this is what marketers, advertising agencies and even media companies should want, if for no other reason than it creates more perceived value in their companies. At a summit earlier this month sponsored by WPP Group search firm Outrider, WPP CEO Sir Martin Sorrell rattled off a downbeat, side-by-side comparison of his holding company and Google. With $6 billion in revenue and 5,700 employees, Google had a market cap, even after some recent declines, of about $100 billion, he estimated. “Poor little WPP,” he said, with its 17,000 employees and its $9.8 billion in revenue, having a market cap of $15 billion. “The market is saying something about our model, and it’s a little bit depressing,” he concluded.

Reaching out to agencies

Armstrong, like Sorrell, knows the gap between advertising as it exists today and advertising as Google imagines it is big, by any measure. “We clearly see this as a 10- or 20-year business,” he says of Google’s hopes for helping transform the industry. That is why now more than ever, Google is reaching out to the agency business.

To truly get a perspective on Google’s relations with agencies, it’s necessary to go inside Google’s New York headquarters, where the advertising team is based, and attend an agency training session. Wedged into five floors in a skyscraper on Broadway just south of Times Square, the office looks more like a play space than an office. Primary-colored Google tchotchkes, such as lava lamps and custom-colored M&Ms, are everywhere.

For a moment, it’s easy to forget that work is being conducted here. Until a visitor looks at her name tag and remembers that before it could be printed out, she had to electronically sign an non-disclosure agreement just for showing up. Welcome to Google.

On this day, the company is holding its fourth training session in the last few months, with a top 10 agency interested in learning more about how to use AdWords for a pharmaceutical client.

Pharmaceutical is one of 15 vertical groups; those verticals consist of some of the most prominent advertising categories. The session is one of roughly a hundred the company has conducted with agencies over the past year, ranging in topics from an introduction to Google to this, a hands-on class where attendees learn how to create and edit keyword lists, check on bids and review invoices.

The handful of agency execs seated around the table are there to be empowered, but the idea that they could run their entire ad program from their keyboard, without help from Google’s account teams, seems foreign.

The pharma account specialists running the meeting—both young women-—say they often get calls from agencies and clients asking for help they don’t need; the interface that guides the bidding process is about as easy to use as Expedia. Not that Google’s account teams disdain handholding. They’d just rather spend time engaging with advertisers by sharing Google’s vast storehouse of category knowledge.

As an example, the pharma team offers that the client may want to buy the keyword “cholesterol symptoms” for one of its drugs. To a doctor, that might seem off-base—people with high cholesterol typically don’t have symptoms. But in Google’s parallel universe, where search terms are the coin of the realm, the only thing that matters is the popularity of “cholesterol symptoms” as a search query.

The Google executives running the meeting probably know more about how to develop a successful campaign than they do. It has less to do with creativity than with how consumers look for information.

The goal, as Armstrong stresses, is to transfer that knowledge from the vertical groups to the advertisers. In the future, he says, the ad programs will be “basically led by the people who are leading the verticals.”

But there’s one vertical that isn’t an advertising category: It’s the vertical devoted to connecting to the agency business. Sitting in on the training session is Clare O’Brien, New York agency development manager for Google, who joined the company from close to a year ago. Her job, along with compatriots in other offices, is to educate the advertising community about Google’s advertising program.

According to Chris LaSala, who, as leader of the group, holds the title head of agencies (yes, that only feeds into perceptions that Google wants to take over the ad business), these executives have to have a minimum of 10 years of agency-related experience so that they have a deep understanding of how the agency business works. He wants “players” he says, people “who can get into a conversation with Martin Sorrell and hold their own.” LaSala, ironically, doesn’t fit his own dream profile. He’s a former business development executive at LookSmart, a search company located in San Francisco.

Stacey Deziel, executive vp/media director at FCBi, the interactive unit of Interpublic’s Foote Cone & Belding, says Google has been extremely solicitous in terms of helping the shop build an in-house search expertise since it kicked into high gear on agency relations last year. “They’ve been fantastic,” she says.

Competitors such as Yahoo! and Microsoft’s MSN learned much earlier that caring about the agency community matters. Google has come late to the idea of having an agency council; the first formal meeting of the 20-agency group was last October. But it’s a step in the right direction. “[Google] is starting to share some of their thoughts with us,” says Stuart Bogaty, an agency councilmember and managing director at WPP’s Neo@Ogilvy. He describes the company as formerly being somewhat “apathetic” about agency concerns.

Armstrong says that the agency embrace has been quiet, even though “significant investments” are being made in the area. “We’re not doing very flashy, entertainment-type things.”

Google goes offline

Ultimately, Google is going to need the advertising industry’s help if it is to realize its ambitions to translate ideas such as asset management, and an auction model, to offline media.

Its relationships with traditional properties often seem spotty. Constituencies that one senses probably have pointed opinions about Google’s offline ventures appear strangely mute when a reporter calls.

Publishing executives at Time Warner, Hearst Corporation and Condé Nast Publications—none of whom participated in the print auction—all turned down requests for an interview. And one major media shop executive also demurred, saying off the record and through an intermediary that he doesn’t want to comment about a competitor. An executive at one of the world’s top marketers offers this: “Like a rich adolescent, Google is acting brash and invulnerable. And I wish them all the luck in the world.” Others don’t return calls at all.

Why would they? Isn’t Google trying to come in and run their business?

Well, sorry to disappoint conspiracy theorists everywhere, but that doesn’t seem the case. In fact, in the near future, the constituency that may benefit the most from Google’s offline moves is smaller advertisers. Because those advertisers make up much of Google’s business, expanding their advertising options offline seems a logical, if not obvious, step.

Think back for a minute to asset management. One of the things that digitization and automation can do for advertising is to make it less expensive to implement. Even though no one is predicting that human-initiated advertising sales is going to go away, calling on every potential customer is virtually impossible. But bring an automated model to, say, print, and those advertisers that were not in the mix suddenly have the potential to participate. Make it auction-based, and a smaller player can choose to play on the same field as a larger advertiser. Give the ads some sort of reporting metric, like an 800 number or a URL, and performance can be measured.

With those things in mind, Google held an auction of print inventory in February, featuring several dozen magazines, ranging from tech titles to a smattering of consumer magazines. Here’s how it worked: Google bought pages in the magazines and then, working closely with the publishers, put those pages up for auction on the Google site. Google made a pact not to approach advertisers any of the publishers had existing relationships with, screened prospective advertisers and assumed all of the risk. Even if the pages didn’t sell at auction for more than what Google paid each magazine, the magazines realized the same income they would from any other advertiser.

“They’ve been very publisher-friendly,” said Jeff Edman, president and CEO of IDG’s PC World Communications.

Its pitch to publishers is that it can help them bring advertisers to their pages whom they never otherwise might have approached, and there are signs that that is precisely what happened.

Michela O’Connor Abrams, president and publisher of San Francisco-based shelter title Dwell, says the auction model and traditional ad sales “will coexist very nicely, in my opinion.” Her magazine participated in the February auction and picked up four new advertisers: Endless Pools, Intercontinental Hotels, Lindal Cedar Homes and Rugs USA. “That’s what I was so hoping for,” she says.

Google has not shared with publishers how much the advertisers paid for the placements and wouldn’t comment further on financial details of the auction.

The print auction has been clearly described by Google as an experiment, but in radio, the company has actually gone and bought an outfit that automates the process of buying radio time. Called dMarc Broadcasting, the company’s model operates on the same basic let-more-advertisers-under-the-tent principle as AdWords and the Google print auction, but it also has another benefit: It lets radio stations sell inventory that would otherwise go unsold. (Google won’t go so far as to say it’s bringing an auction model to dMarc, but does say it’s incorporating AdWords into dMarc’s platform.)

Maybe these ideas sound radical, or foolish, but even if they are, Google is not alone in thinking them. In mid-January, a company called Spot Runner launched a beta test of a similar model for TV, the most expensive medium of all. The Los Angeles-based company has produced thousands of ads in categories from automotive to clothing, which local advertisers can buy and customize. Total production cost: $499.

Media planning and budgeting are entirely Web-based, with advertisers inputting media preferences and credit card information to complete the process. Chairman and CEO Nick Grouf believes it will make it easier for small advertisers to afford TV. “They tend to spend very small dollars in TV,” he says.

The common complaint about these ploys is that advertisers are left with remnant inventory. According to Robert Neil, president and CEO of Atlanta-based Cox Radio, “What dMarc is doing is taking inventory [that] is fringe … and they’re trying to find a way to package up that inventory.”

Kathy Crawford, president of local broadcast for WPP’s MindShare, says dismissively, “It’s remnant time is what it is. And we don’t buy time that way.”

Armstrong’s response to such comments is that the same criticisms used to be made about inventory in the online space. And the facts don’t entirely bear out the remnant inventory argument. In Dwell’s case, for example, Lindal bought two full-page ads. Spot Runner has airtime available on major cable nets during prime time.(Granted, pricing is bound to be far better in smaller markets.)

As for dMarc, Google says it makes inventory available across all dayparts, formats and demographics. Val Maki, vp/radio division of Emmis Communications, a station group that signed a deal with dMarc before it was sold to Google, doesn’t understand what the problem is. “If there’s a benefit in this for advertisers, this should be a very good thing,” she says.

Advertising: art or science

Maybe the problem is this: Google’s approach treats advertising as a science, when, for a long time, advertising has thought of itself as an art.

But there’s a motherlode of logic to Google’s scientific approach: A more efficient, targeted, accountable model should bring renewed relevancy, and more advertisers, into the industry. In fact, that very line of thinking simply parrots back all of the things advertisers and agencies say they want.

There is a part of the advertising business that will never fit neatly into a spreadsheet. Why do Nike ads sell shoes, or why do TV advertisers spend more in the upfront every year, despite declining ratings? It defies the cool logic that companies like Google could bring to the business.

Advertising and media are “the balance between art and science,” says Alan Schanzer, managing partner, North America of WPP’s MEC Interaction. “Google’s model is based on a scientific approach to the marketplace … and that’s where it becomes hard to understand … where this kind of technology can help facilitate this process.”

And some argue that the plethora of media options is tilting the balance toward a business that can’t easily be bought and sold. If advertising messages are becoming increasingly customized in their distribution, messaging and format, then they will defy simple solutions to planning and buying.

“What’s going to become increasingly important in advertising are all the things that are not commodity-like,” says Rishad Tobaccowala, CEO of Publicis Groupe’s new media consulting arm, Denuo.

Nonetheless, no matter where Google ends up in the mix, the automation of the advertising business seems inevitable, whether a full-on automated, auction-based model takes hold or not.

Evidence is everywhere. The 4A’s-backed eBiz for Media looks to smooth the process between buyer and seller. Google competitors Yahoo! and Microsoft are also pumping up their search marketplaces, and the TV Advertising Committee of the Association of National Advertisers recently asked eBay to give it a presentation on “what our capabilities are in terms of creating marketplaces,” according to an eBay spokesperson. (ANA executives didn’t comment.)

“There’s a lot of money left on the table on all sides because of inefficiencies,” says Mike Donahue, executive vp of the 4A’s, who is working on eBiz for Media.

Advertisers and agencies say they want a marketplace where accountability and efficiency are priorities. Media companies would never turn down the opportunity to get more advertisers. Google wants to help make that happen. Can’t they all just get along?

Catharine P. Taylor is a contributing editor

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