Google finally pulled the trigger on its long-anticipated Initial Public Offering Thursday, revealing the inner workings of a business model and company that interactive industry players deal with on a daily basis, but in reality know very little about. The Mountain View, Calif.-based search engine powerhouse filed documents with the Securities and Exchange Commission for one of the most hyped IPOs in recent memory. The documents revealed that Google earned close to a billion dollars ($961.8 million) in revenue in 2003, $932 million of which came from advertising revenues. The company seeks to raise $2.7 billion from the IPO, which is being lead by Morgan Stanley and Credit Suisse First Boston. As expected, Google will sell all of its shares through an auction-based process. However, ongoing legal issues could put a damper on the party. In its SEC filing, Google revealed that it currently faces a lawsuit filed by Overture Services in 2002; Overture is now a Yahoo! company. Yahoo! and Google are key rivals. Google said it believes the lawsuit is without merit, but a loss in court would hinder the company's ability to deploy its AdWords program, which is a crucial source of ad revenue. Trademark infringement suits also hover over the company, as well as growing skepticism from lawmakers and privacy groups over its pending Gmail email service. The service--now being tested--crawls consumers' email messages to serve contextually relevant advertising links in a sidebar next to messages. Google's filing also included a letter to prospective shareholders with the following statement: "An auction is an unusual process for an IPO in the United States. Our experience with auction-based advertising systems has been surprisingly helpful in the auction design process for the IPO. As in the stock market, if people try to buy more stock than is available, the price will go up. And of course, the price will go down if there aren't enough buyers." Google also said that it encouraged its existing shareholders to sell shares in conjunction with the offering to provide more supply for investors and to help ensure a stable share price. Denise Garcia, principal analyst, GartnerG2, noted with interest the auction-based system that Google decided to implement for its IPO. "[Google sells] ads on a bid-based system, so it's interesting that they release their shares on a similar system." Garcia adds: "Essentially, they have transformed the online advertising process. This may creep into other media, and in effect, make the market more efficient." Citing Google's 2003 net income of $105.6 million, Garcia said the figure was "amazing," considering that Google's net income in 2001 was $7 million. She said the interactive Yellow Pages industry should be particularly wary of Google's plans to corner the local search market as well. "Its amazing that [Google] came in when the market was full--and was able to transform it and work with their competitors, and make them more successful too," Garcia added. According to the filing, Time Warner's America Online and AskJeeves accounted for 20 percent of Google's fiscal year revenue. Garcia said that number was surprisingly low, while Jupiter Research analyst Niki Scevak said the number was high. Scevak also had a different reaction to the IPO filing. He said Google's letter to shareholders almost read like a "philosophical treatise on finance," alluding several times to the "arrogance" of its tone, which he said hearkened back to the late '90s egotism of other Internet startups. Scevak further noted that Google's founders Larry Page and Sergey Brin will have a 10 to 1 share over minority holders, an equity structure that he said is "reminiscent to Vivendi Universal or News Corp." The voting structure will give the founders significant control over the company, and appears to be designed to prevent takeover bids. Scevak was also surprised that 30 percent of Google's revenue comes from abroad. According to comScore qSearch, Google's market share overseas is even more dramatic than its domestic share, with the company accounting for more than 43 percent of all searches. Nielsen//NetRatings ranks Google as the No. 1 search destination from home in nearly all of the countries the audience measurement firm tracks, with more than 107 million users worldwide. These countries include Australia, Brazil, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Nielsen//NetRatings data shows that the Google brand was the fifth most visited brand on the Web in March 2004. This marks a 31 percent audience growth during the last six months, from nearly 50 million unique visitors in October 2003. Other data from comScore's qSearch reveals that more than one billion of the 3 to 3.5 billion searches conducted by Americans each month are Google searches. The average Google user conducted 25 searches in February 2004, more than twice the average number of searches conducted by users of the top ten engines. Just over 65 million people visited its sites in March 2004, an increase of 23.5 percent versus March 2003. Further, Google controlled approximately 35 percent of searches conducted at major search engines by U.S. Internet users. According to Jupiter's Scevak, the Google IPO is further evidence of a healthy keyword search market. JupiterResearch forecasts the market for paid listings to increase from $1.6 billion in 2003 to $4.3 billion in 2008. Despite aggressive spending on search, Jupiter says the level of monetization remains low, and organic results are more influential in driving e-commerce. However, Jupiter notes that seven of ten search marketers plan to spend more on search this year. The percentage of search marketers buying greater than 100 keywords increased from 19 percent in 2003 to 56 percent in 2004. Currently, 89 percent of marketers allocate spending to Google, versus 77 percent for Yahoo!/Overture. Fifty-seven percent of search marketers said Google gave the best leads, compared to 31 percent who favored Yahoo!/Overture. Also in the filing, Google revealed it earned $64 million on revenue of $389.6 million in the first quarter of 2004, a number Scevak noted to be "very, very impressive."
The Interactive Advertising Bureau (IAB) on Thursday unveiled recommended guidelines for pop-up and pop-under ad units in an effort to improve the efficiency of online ad creation and media buying. According to the self-regulatory IAB guidelines, a pop-up or pop-under ad is defined as: "Any advertising experience that utilizes a web-browser initiated additional window to deliver an ad impression either directly above or below the existing browser experience." The voluntary regulations state that each individual Web user should be exposed to no more than one pop-up or pop-under ad per session, per site. A session may be a single visit to a site or network, as determined by the publisher and ad server. The voluntary rules also state that pop-up and pop-under ads should be clearly labeled with the "name of the Network/Advertiser--Publisher--Browser Type." The guidelines will be finalized after a two-month-long comment and review period. "The reality is that pop-ups still mean a lot to a lot of sites with regard to ad revenue," observes Peter Green, national sales manager at weather.com. "However, a lot of companies, including ourselves, are aware that pop-ups are a form of advertising that can be very intrusive." Weather.com currently serves one pop-up per user, per visit, and requires that pop-up ads feature an exit component. The top three pop-up advertisers during March 2004 were Yahoo!, which ran more than 177 million impressions on sites including Classmates and BlackPlanet.com; the Republican National Committee, which logged more than 90 million impressions on the Excite network, as well as on WWE Smackdown! and iWon; and American Express Co., which ran over 85 million impressions on sites including weather.com and Quicken.com, according to Nielsen//NetRatings' AdRelevance. In crafting the guidelines, the IAB's Pop-Up Task Force took into consideration research that included an Intelliseek/PlanetFeedback Consumer Trust in Advertising Study, which found that 83 percent of participants said pop-ups are "annoying." The group also cited a Nielsen//NetRatings AdRelevance finding that about 6 percent of all Web ad impressions between March 2003 and February 2004 were pop-ups. The IAB Task Force, led by Rich LeFurgy of Archer Advisors and Scot McLernon of CBS MarketWatch, includes representatives of About, Inc., CNET Networks, Forbes.com, Microsoft Corp.'s MSN, ValueClick, Dow Jones & Co.'s Wall Street Journal Online, and weather.com. "The IAB is headed in the right direction," concludes Weather.com's Green. "This is an issue everybody's trying to get their arms around." To access the new guidelines, go to: http://www.iab.net/
Three Internet industry players reported first-quarter earnings late Thursday amid hoopla over search giant Google's announcement of its long-anticipated Initial Public Offering. iVillage Online women's portal iVillage reported $15.5 million in first-quarter revenues, for 23 percent growth in the quarter compared to the year-ago period. The company also reported a net loss during the first quarter of $0.9 million, representing an 86 percent improvement compared to a net loss of $6.1 million for the year-ago period. The company reported $16.4 million in cash and cash equivalents as of the first quarter, with no debt. For the second quarter, iVillage expects to report earnings before interest taxes, depreciation, and amortization (EBITDA) of between $1.1 and $1.3 million dollars. The company raised its outlook for fiscal 2004 from 20 percent revenue growth to 25 percent revenue growth. It also raised its EBITDA outlook for the full year to between $7.5 million and $7.8 million. "For the second consecutive quarter, iVillage posted positive operating cash flow and year-over-year revenue increases. Advertisers continue to shift dollars to the Internet and to make iVillage a staple of their online spend, all of which sets us up for what we expect to be a strong 2004 and beyond," commented Doug McCormick, chairman-CEO, iVillage, in a statement. McCormick indicated that iVillage will upgrade its site with new technology to improve navigation and enable more broadband opportunities over the next few quarters. iVillage also reported signing new advertising clients during the first quarter that include Novartis, Pfizer, Snapple, Target Corp., Volvo Cars of North America, and Yoplait Light. The Volvo deal represents a 12-month sponsorship agreement. The site has more than 15.3 million unique visitors per month, according to comScore Networks' Media Metrix. Modem Media Modem Media reported first-quarter revenues of $15.3 million, up just a bit from $14.5 million for the same period a year ago. The company posted $1.2 million in operating income for the first quarter compared to $0.9 million for the year-ago period. Net income came in at $0.7 million, or $0.03 per diluted share, for the first quarter, compared with $0.6 million, or $0.02 per diluted share, for the year-ago period. Modem reported $57 million in cash, cash equivalents, and marketable securities. Modem projects a charge in the second quarter due to the closing of its Brazil office, which will be included in discontinued operations, net of tax, of approximately $0.6 million or $0.02 per diluted share. Modem also projects second-quarter revenue from continuing operations, excluding Brazil, to fall between $15 million and $17 million. Modem's full-year outlook ranges from $65 million to $70 million. New agency clients include British United Provident Association, Charles Schwab, PricewaterhouseCoopers, and Spiegel. LookSmart LTD LookSmart LTD posted a first-quarter loss of $7.1 million, or 7 cents a share, and revenue of $27.6 million compared to $29.4 million for the same period a year ago. The company expects full-year revenues of $76 million to $81 million, up from $45 million to $50 million. LookSmart also announced the acquisition of Net Nanny, an online filter, for $5 million.
Ever wonder when Web users are most apt to buy snack crackers, or how they might respond to a car lease offer? This week's In the Trenches subject doesn't have to wonder. In less than 24 hours, Chuck Moran, manager of market research at BURST! Media, can determine what thousands of visitors to the network's sites think of just about anything. Basic Training Despite years of experience in the research field, Chuck is continuously amazed by what he uncovers about the folks he studies. In 1990 he attained an MBA, focusing on market research. From there, Chuck moved from a position at a large research firm in Boston to a research management role at insurance provider Liberty Mutual, where he settled in for six years. In 2000, when a colleague who had previously left Liberty Mutual for BURST! came knocking, Chuck said goodbye to the insurance gig. Daily Drills Chuck wears a few hats. More than just a number-cruncher, he always starts his day by checking up on how ad campaigns running throughout the BURST! network of niche content sites are performing. Then he might move into a sales role, assisting the sales department by buffing up agency proposals and pitches with site survey data. BURST! conducts quick site visitor surveys to supplement proposals--and to help current advertisers better understand their target audiences, or to evaluate a particular Web site's readership. Chuck is responsible for crafting survey questions, implementing them, and harvesting the data. "People think market researchers are number geeks. ... but I never want to be known as [a] number geek," Chuck emphasizes. "I want to be known as a marketer who knows how to do a standard deviation." As part of their agreements with the network, site publishers are required to load surveys, usually consisting of around ten questions, onto their sites. And although the 39 million unique users who visit BURST! sites each month don't have to participate in those surveys, on an average day, 10,000-15,000 responses roll in. That's typically enough for Chuck to gather a projectable sample, even after scrubbing the data. He calls it a "dream job" where no matter how discrete the inquiry (Do these people purchase Cheese Nips on Wednesday?), he'll have an answer soon. This month, he notes, the company's research focuses on social networking. Another current topic of study---clutter. "We're judging the impact that page clutter has on consumer interaction with brands," he explains. Tough Battles "I'm always running against the wall on time," laments Chuck, who often helps the sales team to turn proposals around in one business day. Knowing that adding relevant survey statistics to a proposal can give BURST! a leg up on the competition, the company often contacts advertisers and agencies with supplemental data after submitting proposals, "to add that frosting to it." Base Camp BURST! makes its home in an office park outside of Boston on "America's Technology Highway," Route 128 in Burlington, Mass. In the open office space, says Chuck, "There's a lot of energy," but the real action takes place in the parking lot, where a local hawk is known to lurk in search of prey. Chuck worries for the squirrels now that the pigeon population is almost depleted. "We've even seen a wild turkey walking through the parking lot," he adds. Mission Possible "Measurement is a huge issue," asserts Chuck, who believes that the interactive advertising industry as a whole needs to refine standards by defining what an impression is and who controls impressions. Until this is set in stone, argues Chuck, "we will always be backed into a corner in having to defend why something's done." Still, he is proud of the strides the industry has taken in its short life. Citing firms such as aQuantive's Atlas DMT, DoubleClick, Dynamic Logic, the Interactive Advertising Bureau, and, of course, BURST!, Chuck concludes: "From a research perspective, the industry can pat itself on the back. We did lot of work to demonstrate the vitality of the Internet and to show the value of the medium in a short period of time." Do you know someone who deserves a salute from MediaPost's In the Trenches? Let us know! Contact Kate Kaye at kate@mediapost.com.