Google, Omnicom Partnership Redefines Digital Advertising

 

This story has been updated.

 There's more to the new Google and Omnicom Group alliance than meets the eye.

This formal collaboration in the race for online display ad dollars will have significant consumer privacy, mobile and social media implications -- areas in which both companies have seemed intent to push the envelope.

New York-based Omnicom is expected to buy hundreds of millions worth of display ads for its clients through a specially-built "trading desk" that will more effectively match ad buyers and sellers to Web site advertising through Google's auction-like exchange system. Omnicom already buys ads on Google's exchange using its own technology and analytics, which Google can now provide through the nonexclusive global deal. Google also has working relationships with Publicis, GroupM and other agency holding companies and their affiliates.

How the consumer information will be used to develop potentially lucrative connections is the most valuable element of the Google-Omnicom tie-up.

Google opponent and Precursor president Scott Cleland has pointed out in his Google Monitor that the Internet giant has exceptionally powerful tools to mine and use targeted consumer data.  Companies doing business with Google's back-office technology forfeit all relevant client information on virtually everything. "Omnicom is going to get its pocket picked," Cleland said on CNBC Thursday.

Facebook Connect in particular has the potential to function as a rival ad hoc ad network, targeting ads to its uses across any participating sites. Google's latest attempt to get into the same registered social-networking game, and sell types of consumers rather than blocks of sites, can utilize Omnicom, its affiliates ad agencies and common brand clients, such as P&G.

This is no small point. Lightspeed Venture Partners estimates that two-thirds of all ad spending in the U.S. is for brand advertising, yet three-quarters of online ad spending is direct response. Only one-fourth of online ad spending will start to flow into digital "at scale." That can only happen if Madison Avenue -- agencies and advertisers -- shift some of their dollars from proven media platforms to evolving digital venues that have yet to demonstrate their value.

Google CEO Eric Schmidt indicated the company is pursuing interactive video ads as a major revenue stream to offset moderating search ad dollars and to head off Apple's fledging mobile iAd efforts. Google officials elaborated on their aggressive investments to cultivate new revenues from mobile (with the Android operating system), display ads and video ads (through its YouTube and Google TV initiatives) and Apps (including Android users inventing their own applications) during an earnings call Thursday. Lighter-than-expected earnings underscored Google's struggle to sustain double-digital growth.

Its Internet dominance and edgy development keeps Google in the center of behavioral tracking and privacy issues, about which the search giant and Omnicom weighed in a year ago when the Federal Trade Commission and Congress examined online behavioral targeting. Potentially explosive privacy issues remain a deterrent to increased digital spending by many U.S. companies, according to eMarketer analyst David Hallerman.

The new alliance is an especially formidable boost to Omnicom, which has been more low-key than agency rivals Publicis Groupe and WPP in advancing digital initiatives, such as creative standardization for online video ads, digital data collection and improved ROI. Google says it has three-fourths of the top 20 ad networks on its AdX exchange and all AdWords advertisers, while delivering more than 100 major publishers more than 1 million AdSense affiliates.

According to a new comprehensive report by Credit Suisse analyst Peter Stabler on digital opportunities for ad agencies and their holding companies, improved margins and higher fees are certain as overall share shift accelerates from traditional media spend.

And it underscores Google's willingness to work rather than compete with agencies as it creates a one-stop suite of online ad services and increases its own online display ad footprint, despite WPP's Sir Martin Sorrell pegging Google as the "frienemy," Stabler said.

The July 12 report, which narrowly preceded the Google-Omnicom announcement, offered a lukewarm assessment of Omnicom's digital positioning compared with other holding companies and smaller interactive agencies. Digital revenues collectively comprised 18% of Omnicom's overall revenues in 2009 compared with 27% of WPP and 22% of Publicis. The outlook for display advertising is at least as big as the $11 billion search ad sector and essentially double Google's advertising business, experts say.

In fact, eMarketer estimates that online ad spending, which represents a portion of increasingly diverse digital ad spend, will morph from $25 billion this year to more than $36 billion in 2014 or about one-fourth of overall U.S. ad spending.

Working more closely, Google and Omnicom can advance or distort the new paradigm identified by Hallerman -- asking consumers for permission to target them based on their online activities. The question remains how far Google and Omnicom will go to leverage each other's strengths to advance their own digital ambitions, and what potential risks or rewards await interactive consumers.

Recommend (29) Print RSS
3 comments about "Google, Omnicom Partnership Redefines Digital Advertising".
  1. Paula Lynn from Who Else Unlimited , July 19, 2010 at 11:12 a.m.

    Will they direct ads that you want you to see or that they want you to see and redirect your desires? It's not just BT, but intense behavior analyses to alter behavior. Later, you may be appalled at the outcome.

  2. Nigel Wright from pipelinetorque , July 20, 2010 at 11:20 a.m.

    No way on God's earth does P&G account for 67% of all US ad spend!!!!!!!!!

  3. Kathy Sharpe from Resonate Networks , July 20, 2010 at 4:21 p.m.

    A couple of questions? Do you think this will benefit Omnicom clients? It's a 2 year deal, will that be enough time for any one to see the benefit? And, isn't this really just a stop gap measure so that Omnicom doesn't have to make any substantial changes to their agencies' structures and processes?