Consider the following quote: "The global estimate is somewhere north of $500 billion. Current rough run rates would indicate that the online world is two, three, four, five percent of this total number, Google on its current revenue path is on the order of one percent of this total number. So there's a lot of room to grow."
The $500 billion the speaker is referring to is the estimated size of the entire advertising industry. Creative, planning, buying, television, billboards, online, direct mail, people holding signs and passing out fliers on the street, you name it. Using this massive figure of $500 billion to frame the market potential for Google would be extremely bold for even the most bullish Wall Street analyst trying to justify a buy on a $480+ stock with a PE ratio of 53. But the speaker above isn't a Wall Street analyst; the speaker is Google's CEO Eric Schmidt. Add to this that Schmidt's audience was the Association of National Advertisers and the title of the October 2005 speech was "Technology is Making Marketing Accountable," and you see the agencies' frienemy emerge. But Google doesn't see itself as a friend or an enemy to traditional advertising services. Google sees itself and its technology as a solution to inefficiency, and the advertising industry as an industry rampant with inefficiency. So Google will ride in on its white horse and save the advertisers, the content producers who rely on advertising and the people targeted by advertising.
To this end, Google is willing to work with anyone interested in solving the big issues facing advertising; anyone, that is, willing to rethink anything and everything. No business units can be sacred, because you can't address change and apply theory to practical applications while insisting on certain areas holding constant. But the catch is that a purely Google solution (re: algorithmic) to the issues facing advertising could have seriously detrimental effects on agencies' bottom lines. If agencies are forced to follow Google's lead as it develops technology to implement theories that improve the efficiency of advertising, the agency will be relegated to reacting and Google will "own" the interface. Agencies will be continuously reorganizing and reassessing their roles while attempting to protect traditional business units/revenues. Try to imagine Google holding off on releasing a system that improves the accuracy of advertising measurement because of the system's disruptive impact. Now compare that to recent delay in introducing the new commercial ratings systems, while media and advertisers attempt to reach unilateral agreement on the implications of the new system.
Agencies, and particularly the largest holding companies, posses the knowledge, the skill sets and the relationships to breakdown traditional advertising norms on their own terms. Agencies can develop new theories regarding the requirements of technologies to deliver more efficient advertising. Agencies can then facilitate the development of these technologies (this role was the subject of an earlier Spin). By facilitating the development of next-generation advertising technologies, the agencies can lead changes affecting the future of advertising efficiency and accountability. Leading changes of this magnitude will require some levels of "coopatition" (cooperation and competition) among the agencies.
Leading change will be required for today's agencies to stake their claim to that $500 billion their frienemy is eyeing so boldly. Luckily, traditional media isn't disappearing overnight, but it is up to the agencies to manage the sea change. To this end, if there is one book I believe provides unparalleled insights, it is a book co-authored by Google's chief strategist, Shona Brown, titled Competing on the Edge. After reading this book, one can readily see Brown's fingerprints all over Google's success and the application of the theories developed for today's advertising world. Of particular relevance to today's agencies would be the book's theories on blending old and new business models, patching businesses and probes.
In the end, the description of Google as the agencies' frienemy is accurate--but in the end whether it is more of a friend or and enemy depends on the agencies. For those agencies successful in their efforts to improve advertising efficiencies and reevaluate excepted methods, then Google can be a friend. Google will help achieve, from a technology perspective, the vision those agencies set out to fulfill. For those agencies in a more defensive posture, Google can be a deadly enemy, disintermediating agencies from the advertiser and commoditizing traditional agency services. Agencies can rest assured that there are many areas, such as brand advertising, where Google isn't anywhere near a true solution or establishing industry standards. This is where there's room for agencies to step up, establish the standards together, build their vision of advertising's future and invite their friend Google to the table on their terms.
Schmidt concludes his speech to the ANA by stating Google's goal for changing the advertising industry: "If Google could do all of this, the world would be a much better place. The ads would be even more targeted, even more useful. You would be able to reach each and every person along that curve, that I was talking about earlier. You would get the maximum penetration of your message, your product, your service, and you would get maximum accountability. So we've set out to do that."
Interesting looking back more than a year later, isn't it?