March 24, 2009 · Print This Article
The crux of the article is this:
‘The company’s adamant refusal to use banner or other graphical ads eliminates what is the most lucrative income stream for rival search engines. Although Google does have other revenue sources, such as licensing and text-based advertisements, the privately held company’s business remains limited compared with its competitors.’
This is interesting for a couple of very different reasons. Firstly, as a historical reminder that Google flipped the industry on it’s head in breathtaking fashion. They did away with the predominant image based ad, borrowing the business model of Overture to serve text ads linked to an auction pricing model and took something new to market. At the time (as a media buyer) I certainly didn’t believe it would work, preferring, instead, the glamour of AltaVista (RIP) banner advertising to the three line text ad on Google. Fast forward to 2009 and Google is the biggest ‘media owner’ in the world, generating $6bn of advertising revenue per quarter.
The second interesting point to come out of the Business Insider article is linked to comments made recently by Eric Schmidt, speaking at the Morgan Stanley technology conference. When asked about where Googles growth in revenues would come from, he replied:
‘Where is [our] next source of revenue? [The] next source is current business functioning better. Next and adjacent is a set of display businesses and an exchange being built from DoubleClick business.’
A slight change of tactics from their stance back in 2000 but the reality is that the market for text ads is maturing and growth is levelling off.
There are few details on the Google exchange product but this time they have bought the business that they will use to to leverage display (Doubleclick), instead of borrowing the model and being sued at a later date. So what could this product look like, given that Schmidt sees it as so crucial to revenues going forward? Well, instead of thinking about Google as a purveyor of text ads on the search results page, think about them as the largest owner of intent data in the world through their search engine. One way they’ve used this intent data is to serve text ads against search tems, but this is only one execution of an ad against a hugely powerful data set. Through a display media exchange it becomes possible to intelligently serve display ads against that data on any site, which will open up a huge new market to Google in highly targeted display advertising.
To make this a reality, a big challenge for Google to overcome is the issue of data privacy. Two weeks ago Google made a significant announcement around a basic ‘behavioural’ targeting product across You Tube and its Ad Sense network. It was only a matter of time before this happpened, but they have clearly gone to great lengths to introduce it in a simple, (relatively) transparent and cautious way. The media whipped up an ‘information privacy’ storm around Phorm in the UK, and it seems that Google may have been waiting for that to die down a little before dipping their toe in the water in a very controlled way (with plenty of user control and opt out-ability). The obvious omission from the announcement was the use of Googles search data in the targeting formula. Make no mistake, this will come in the future (Yahoo! announced their own Search/Behavioral retargeting solution last week), but Google may be waiting for people to become comfortable with this simple behavioral model first, before ramping up the sophistication with the reams of data they hold.
Much of this is still speculation, as things are heavily under wraps, but the Google Exchange isn’t too far away and there’s little doubt they have both the data and the distribution channel to make this the market leading product in display, flipping the market back on its feet and with display advertising on a more even footing once again.
We’d love to hear what you think…