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June 14, 2012, 10:57 a.m.
Business Models
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The newsonomics of Google (Ad) Singularity

As Google tries to assemble its advertising programs into a coherent package, publishers are facing a familiar dilemma: join up with Goliath or compete against it.

Next Wednesday, Google hosts an all-day assemblage of news publishers in New York City. It won’t be the first meeting, but it’s an intriguing time to be talking “partnership” with news media. Why? Lost in the marketing and technology pages and posts of the web, Google’s been relentlessly reshuffling of its ad businesses the past few weeks as it moves toward something we could call The (Ad) Singularity. Forget transhumanity — think sales.

Consider:

  • Google’s upcoming release of DoubleClick Digital Marketing. With more than a thousand engineers working on display advertising, the new platform brings together much of what has been separate and disparate for Google and its customers. The words of the day: integrated media. For Google, that means abandoning old, separate names for its products — Dart for Advertisers, Invite Media, DoubleClick Search, creative platforms (DoubleClick Studio, DoubleClick Rich Media and Teracent), and Google Analytics — as DoubleClick Digital Marketing becomes both the umbrella and the foundation of its display ad business. What’s the goal here? Google’s Neil Mohan explains: “The idea is a comprehensive single platform for the world’s largest advertisers and agencies to manage all their media buying across channels — display, auction display, search, video, mobile — in a seamless, truly integrated fashion.”
  • Google and Facebook putting some distance between themselves and rest of the digital advertising elite (Yahoo!, AOL, and Microsoft). The two are rapidly forming a duopoly in the digital display market, as the other three lose market share to them. This year, those top five companies will claim 67 percent of all digital advertising sold in the U.S., and that percentage has been rising each year.
  • Google’s fresh assault (well summed up by The Wall Street Journal’s Amir Efrati) on the local digital advertising market, estimated at at least $10 billion a year just in the U.S. Here, too, it is consolidating formerly disparate utilities and products. As part of that push, Google+, the late-arriving competitor to Facebook, is making a right turn, becoming much more business-oriented. Remember the local business directory listings of the ’90s, first spawned by Yellow Pages companies, all of whom have now gotten out of that digital business after failing at it? We’ve seen lots of attempts at getting local business listings built out and well used, but no one — not publishers, not Google, Yahoo, or others — has broken the code. Singularity here means putting together Google+, Google Wallet, Google Maps, AdWords Express, as well as Google Places, its Yelp-like/Yellow Pages-like push into directories and user-generated reviews. Further, Google’s just-announced Meebo acquisition enables better publisher tools within the combining product. In addition, the company is testing TalkBin, which enables customers to send anonymous feedback, via text message, to a store’s manager, and Punchd, a smartphone-based loyalty-rewards program. The big idea is to push local merchants, especially small and medium businesses, to “get your business online.” One mantra heard from Google’s local business leader, Marissa Mayer, is “local is social,” and that’s where Google+’s restyling makes business sense. The little goal here: Get ahead of the 27 million businesses in the U.S., only a small minority of whom have really built out much of a digital presence. (We can figure that even with the huge business Google has built, it has only signed on maybe a tenth of that number as customers for paid search.)

Wait a minute — simplicity, or unification of services and platform, is good, right? Indeed, any merchant trying to buy and track online advertising may find it less confusing to do so. Resellers of Google, and there are many, unofficial as well as official, may find the process easier. What simplification also does, though, is remove the murkiness from Google’s plans for world advertising domination. As critics and regulators have pointed to this Google initiative or that, Google could always say paid search is one thing and trying to “enter” the display market is another.

Listen to Danny Sullivan, a veteran search watcher and Search Engine Land’s editor-in-chief. “Google hasn’t yet taken search-term data into display.” But it could, and probably soon will. Sullivan has written about Google’s tightening around data sharing with publishers. Google can say “on our end, we know all the data,” says Sullivan, using that superior knowledge position to further dominate digital commerce. He who has the most data wins in this game. Given the integration, the coming Singularity, the deeper connection of search data to display targeting seems both highly likely and likely to product more effective results for merchants. That makes Google a, if not the, most powerful force in digital advertising, which will surpass print in U.S. dollars spent this year.

Add it up, and Google moves to its next stage. Paid search equals about half of digital advertising, and the Google absolutely dominates that business, with a still-astounding 82 percent market share. Since buying Doubleclick for a paltry $3.1 billion in 2007, it has moved to become the display leader, and is moving into that duopoly position with Facebook, as Yahoo, AOL, and Microsoft all lose market share to those two. Connect up paid search and display and Google’s ability to dominate display, as it has paid search, becomes more of a possibility. Bigness begets bigness on the web, and in some cases (Google in search, Facebook in social, Amazon in commerce, for starters), it seems there’s not much of a second place.

And that’s all before these recent pushes take real effect. Google’s bigness, and dominance — objects like Google may actually now appear as large as they really are — becomes more apparent to everyone, with the possible exception of the FTC and DOJ.

All of which, of course, puts Google in an interesting position as it offers its show-and-tell to news executives.

So while on the agenda is a spate of revved-up, or newer, Google products — YouTube, Google+, Google Play, Currents, and Google News — we can wonder about what Google will say about its local and display ad pushes. As newspaper national advertising has followed classified advertising in taking the biggest hit from Internet disruption, retail or local display advertising has increased in importance to dailies, both online and off. It came in at 57 percent of all newspaper print advertising in 2011, according to NAA, its highest percentage ever. (Ten years ago, it was 47 percent.) Of course, much online newspaper advertising, outside of the classified verticals, is display.

Publishers well realize the frenemy nature of the Google relationship — can’t live with it, can’t live without it. It’s no longer a question of whether Google is competing with newspapers, nor of who has won. In fact, as Google’s digital ad revenues and profits accelerates, news publishers have lately seen a flattening of their own digital advertising growth.

Take one number, which I’ve tracked for several years: In 2011, Google racked up $37.9 billion in revenue and $9.7 billion in profit, numbers that make the largest U.S. (and second largest globally) newspaper company look pale in comparison. Gannett took in 14 percent of Google’s revenue and not quite 5 percent of its profits. That divide — a proxy for the battle between Google and legacy media overall — grows wider each year.

If we ask the questions of how news publishers should now proceed to work with Google — on what, how closely — we can also ask this question: Why is Google even bothering? (Efforts to get Google’s point of view were unsuccessful.) Isn’t it more concerned with Facebook these days, and Apple’s ramping up its local forays, including taking a shot at that gateway drug, digital mapping, as well as emerging Facebook/Apple partnerships?

Aren’t newspapers disappearing, both physically — see New Orleans — and as a marketplace force? Well, they may be receding in their impact, but they still have remarkably rich resources: some of the largest local feet-on-the-street salesforces anywhere, long-time merchant relationships, lots of page-generating, ever-changing content, and the ability to be the midwife in creating enormous amounts of data.

Ah, yes, the data.

Jonathan Mendez is a long-time Google watcher, and a competitor. His newish startup, Yieldbot, is working with publishers to capture “intent,” in a bid to bypass Google and gain more revenue for those who create content (“The newsonomics of what to read next”). His view: Much of Google’s next-stage push with publishers is around deepening Google’s data trove.

“No doubt Google is going hard at the pubs. They know they have the best data, and it’s only actionable in realtime with some first-party relationship. There are some pubs that will not partake, and in the long run they’ll have better businesses. But Google will get enough to keep growing their business.

“In a way, it’s like the early days of search. Nobody ever thought it was quality advertising inventory — especially ad agencies — so it snuck up on people and before you knew it (less than five years!) Google was the most powerful advertising company in the world. Their display strategy looks and feels a lot like what they did in search to me — create a new paradigm value where people think there is nothing valuable at all and keep getting smarter at it until they are the most valuable piece of the pie. Then everyone has no choice but to partake. Keep in mind all their disparate data sources — Google Analytics, AdSense, Search, Maps/Local, Chrome, Gmail, Calendar, Android — that come into play. Let’s not forget the changes in Google’s privacy policy that now allows them to share and use that data across platforms. That’s a killer for pubs that has gotten very little attention.

“Through Doubleclick, Google understands all the yield rules for every publisher that uses DFP [Doubleclick for Publishers platform] as their ad server. It’s simply an astounding amount of data. Couple that with an understanding of ad performance flowing through that decisioning and Google has full insight into both sides [publishers and merchants] of the revenue drivers.”

So, where does Mendez think this leaves publishers — now?

“Publishers are getting more self aware about the value of their data, so Google getting all this data — for free — is beginning to get recognized. Publishers gave away their ad inventory to networks for short-term rewards. In the end, it hurt them. If they relinquish their data to third parties in the same manner, the results will be even worse. Data holds the only true insights into their business. Understanding why someone is buying is the only way to maintain any business for the long run.”

Clearly, reseller relationships between Google and publishers are more advanced than those that publishers have with Facebook, for instance. Google may want to reenforce and heighten those relationships. It could be aiming to replace Yahoo, which has built a network of half the U.S. daily newspaper companies through the newspaper consortium. That half-decade-old deal, though, is due to expire toward the end of next year. With Yahoo reeling, cost-cutting and focusing on programming, the chances of a robust renewal of that consortium deal seems less likely each week. So, might Google want to offer its (superior) targeting to news publishers, as Yahoo did early on, and better terms on “reselling” Google inventory? The marketing-services religion — become a regional agency offering not just print and online newspaper ads, but site-building, SEO, SEM, Groupon, Facebook, you name it — is still sweeping through chains, from Hearst to Gannett to Tribune to McClatchy. These publishers would like to sell products other than Google’s, ones that often offer higher margins, but find both Google’s reach and perceived effectiveness make it a must-buy. Consequently, Google could sweeten its partnership offers with these marketing services initiatives (“The newsonomics of eight percent reach“).

Google, of course, has had its share of stumbles along its highly profitable path. It remains true to a vision, says Greg Sterling, one of the savviest people watching the local/mobile/digital marketplace and a senior analyst for Opus Research: “In local, they are both trying to build their revenue and to appeal to consumers needs, especially mobile consumers.” In doing so, news partnerships can be quite helpful for both. Sterling says that Google’s market approach is fairly consistent: “Google focuses on scale. It takes a one-size-fits-all approach. Local is a different challenge,” especially in that mix of how technology, local knowledge, and local sales work together to exploit this new opportunity.

One key question that keeps publishers up at night is how they maintain direct relationships with current customers and create new ones through their new regional agency work — especially the multitude of smaller advertisers that are sampling both Google ad products and publishers’ own products. Who has the technology to put behind the sales, and who has the sales energy — in-person sales still trumps telemarketing and self-service — to make the technology work are two key questions. Expect that handoff, between technology and sales, people and product, to be a pivotal part of the next Google/publisher dance going forward.

POSTED     June 14, 2012, 10:57 a.m.
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