The Cash Cow Google Never Talks About

by Laurie Sullivan, Jan 19, 2011, 6:26 PM

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Google never talks about it but the Mountain View, Calif., tech company does a darn good job of targeting ads based on behavior. I look at this as similar to the way advertisers never talk about targeting ads to kids, so they can influence their parents. Not targeting a consumer's behavioral patterns sets up a campaign for failure.

I'm pretty much convinced that every form of online advertising, if successful, relies on one form or another of behavioral targeting. Company just may not call it that.

I'm also convinced behavioral targeting is one reason that, when Google releases fourth quarter and full-year earnings Thursday, it will report another stellar year. Research company iSuppli agrees. The firm's IHS Screen Digest research released Tuesday estimates Google's full-year search advertising revenue in 2010 will rise 20.2% to $25.4 billion compared with the prior year, with a market share of 83%, up from 81%, respectively.

Vincent Letang, senior analyst and head of advertising research for IHS, pegs the global search advertising market at $30.4 billion in 2010, up 17% from $26.1 billion in 2009. He says Google will stand on three pillars in 2011: search, video/display and mobile. I think there are four, with number four being behavioral targeting.

Calling the search pillar Google's "cash cow" that fuels revenue growth, Letang says the video and display pillar generate short-term revenue growth, while the mobile pillar provides long-term growth. In essence, Google has created a cyclical cash market strategy similar to Microsoft and other large corporations that have succeeded to sustain ups and downs throughout the year.

IHS estimates display revenue rose by 61% during 2010, playing a major role in Google's market share performance. This area was boosted by the success of Google's subsidiaries YouTube and DoubleClick.

In fact, Google published a paper this week that reveals that when DoubleClick Ad Exchange wins the auction to serve up ads, publishers generate 188% more revenue, on average, net of revenue sharing and ad serving fees, compared with fixed upfront sales of non-guaranteed display advertising. The results aggregated across all publishers participating in the Ad Exchange.

The Ad Exchange fill rate, defined by Google as the percentage of offered impressions resulting in a matched transaction, including those with minimum CPMs or restrictions, increased to more than 33%.

When it comes to mobile, Google benefited from revenue generated by the increasing popularity of the Android operating system and the company's acquisition of AdMob, according to IHS. Google did meet and fend off challenges in 2010. The company lost significant market share to Baidu in 2010, but decided to serve the local search market worth $1.6 billion through Hong Kong, according to Letang, who says the only real challenge will come from social media -- not another competitive search engine.

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