At the turn of the century, before Google launched AdWords, the paid search program that would make it one of the richest companies in the world, it had a back-up strategy for making a profit. Google's Plan B? Cut a deal with DoubleClick, then an ad network riding high on the first dot-com boom, to serve banner ads on its site.
The scheme didn't sit right with Google's founders, Sergey Brin and Larry Page, but was there on the backburner, just in case, according to John Battelle, author of the book The Search, about Google.
Fast forward seven years. Google finally forged its deal with DoubleClick - a deal to buy the company for $3.1 billion.
Not only did Google manage to keep its site free of banner ads, but its paid search program sparked a virtually unprecedented growth spurt while also reviving the online ad industry.
Today, Google's reach extends far beyond online advertising. As it has morphed into a $150 billion business, not to mention become a verb - as in "just Google it" - the company has also gained toeholds in every facet of the media world.
Of course, with cash reserves totaling $12 billion, Google has the means to enter just about any business it wishes. And it seems to wish to enter many. This spring, the company forged separate deals with satellite TV company EchoStar Communications and radio giant Clear Channel to sell ads over their networks. Those deals come on the heels of last year's deal with dMarc broadcasting, which gave Google an entry into radio sales. Google also last year started selling ads for more than 50 major newspapers. Additionally, the company recently took an equity stake in broadband-over-powerline company Current Communications.
Consider also its planned $3.1 billion acquisition of DoubleClick, its $1.65 billion purchase of YouTube, its drive to develop Universal Search, and its desire to extend Google Apps, Maps, Earth and Checkout, its online payment services play. And, of course, there's Google's plan to introduce media auctions. No, not only for the Web, but print, radio, TV and outdoor - basically any and all media.
Some in the industry think that's just the beginning. Isobar u.s. president Sarah Fay proposes that Google's real goal is to become a one-stop resource for automated advertising buys. "It has been telling the market that eventually it will be the gateway for all advertising dollars. It wants to change the buying behavior of the entire industry, and to someday be able to go to the biggest advertisers and say, 'All you need is right here.' The technology will dictate the targeting, the distribution and the resulting ROI."
This spring, Google proposed a real-time airwaves auction model to the Federal Communications Commission that would allow a spectrum license holder to auction unused spectrum to bidders on a wholesale basis. The auction system might be similar to its AdWords platform, which allows companies to bid against each other to have their ads displayed when users search for specific terms.
But what really seems to keep media buying and planning executives up at night is Google's TV ads program, which would create an auctions marketplace. Google even proposes a marketplace for advertisers that don't have their own resources to create TV commercials; the company did this with radio as well. Advertisers would only have to pay for impressions delivered.
Google's vision for media auctions, even in its preliminary form, immediately calls into question the role and function of media agencies in a media and advertising ecosystem that is rife with waste, inefficiency and layers of bureaucracy. That a company that made its reputation on search might easily supplant the media buying function in less than five years is unthinkable to some executives. It also frightens them. Consider, Google holds so much sway in the business right now that many media executives from traditional agencies that this writer contacted demurred when asked to comment for this story.
Frenemy at the Gate
WPP Group's Martin Sorrell famously dubbed Google a "frenemy" - his way of implying that while agencies and holding companies can't avoid working with Google, this particular partner could stab you in the back at any time. There's not much stopping Google's swagger and influence and there aren't many businesses, small or large, that don't feel its influence in one way or another.
Google cuts such a broad swath through most of our lives - personal and professional - it's hard to know where its influence begins or ends. It pervades just about every interaction we have on the Web.
"I understand why people are generally nervous," says John Battelle, chairman and publisher of Federated Media and author of The Search, a book about Google. Battelle says the fear emanates from a sense of, "What does Google know that I don't know? Or what could Google know that I can't know? That's the question that's starting to make people nervous. It's about the access to information that they have."
Think about it: Google has a rich trove of information on consumers' search habits and now with DoubleClick in its fold, can potentially serve targeted Web-wide display ads based on individuals' behavior.
Separately, DoubleClick is poised to test a media auctions system. That technology should give Google a leg up in leading innovation in the media auctions arena. Through DoubleClick, it almost certainly has advertisers on board.
Battelle maintains that fears over Google's desire to own content are unfounded: "Google isn't good at making advertising or owning content." However, that doesn't mean that it doesn't want to represent or make money from content. "But they're not interested in owning it," he says, adding that rumors about Google wanting to acquire NBC, CBS or a studio don't have a lot of traction: "It's trying to be an enabler and not an owner."
The fear that Google aims to run media auctions and own content is irrational, agrees Jordan Rohan, managing director and Internet analyst at RBC Capital Markets. "The idea that Google will buy a studio or a major TV production company is hogwash. People don't understand Google. Owning YouTube doesn't change all the rules of marketing and media."
Moreover, Rohan says Google's recent acquisitions are more about maintaining a strong position online than overtaking traditional media companies. He says the company had to scoop up YouTube, risking less than 2 percent of its market cap, because it was more popular than Google Video. With no real footing in online display advertising, the DoubleClick acquisition gets Google part of the way there; the ad exchange is "a much less sinister" scenario and more "practical" than agencies are willing to see, Rohan maintains.
"Google and others in the ad auctions space will look first to lower transaction costs and second, to increase efficiencies with respect to which ads are bought and sold. Right now, the processes [of buying ads offline and online] are very inefficient," Rohan notes.
Google's plans for media auctions are all over the map, according to media agency insiders who've had discussions with the search giant. But Google appears to be mapping a strategy for an integrated media buying platform that enables agencies, advertisers and media buyers to track campaigns across offline and online media, while also allowing them to compare campaign performance and metrics for both.
"In reality, agencies are a long way off from actually being threatened by the prospect of auctions," notes Sarah Fay, president of Isobar, U.S., the global network of digital marketing services companies owned by Aegis Group PLC. "And even if Google achieves its goal of becoming the de facto platform for all media purchases, clients will still want an independent partner to help make the best use of technology, tools, insight and messaging."
Google Goes Offline
It's true that some of Google forays into offline media haven't been encouraging. Google's magazine program was largely considered a failure. Google had auctioned off ad space it bought in nearly two dozen magazines including Martha Stewart Living and Road&Track. Demand for the inventory was sluggish and Google was forced to slash prices.
Still, with respect to Google auctions for TV inventory, there is a when-hell-freezes-over mentality among traditional media executives. After all, these are the same people who complain year after year about the upfronts on one hand, yet continue to gulp down the jumbo shrimp at network soirees on the other: The industry is addicted to continuing waste and inefficiency in the advertising mediaverse.
Ironically, Google, which is embroiled in a copyright infringement suit brought by Viacom, is planning a test of an online media buying auction with former Viacom-sibling CBS. Google has steadily been ramping up its profile in offline media; it acquired ad sales rep firm dMarc Broadcasting more than a year ago and continues to run tests of online ad sales functions for radio, print and now TV.
Internet analyst Henry Blodget takes the position that Google won't be able to sell ads as profitably for TV or radio as it does in search engines, because it doesn't own or control that content. With search, he says, the "content" is the results page itself and while Google doesn't own the Web sites that appear in those pages, the company's technology is the engine that generates them.
Adding further to the view that Google isn't really equipped to become the "king of all media," Blodget maintains that in order to come close to that status, Google would have to create, produce and monetize all media. Based on those three criteria, Google doesn't have the throne, even if it is currently the "richest" company in the media sector.
That doesn't mean it can't lumber toward the goal of running media buying auctions through its enabling technology platform. Controlling the $70 billion TV advertising business through its platform would be a coup, to be sure, and would forever alter the media landscape. The question is whether it would actually bring about greater efficiency, transparency and accountability to media.
While Google continues to look for hooks to extend its influence in the media and advertising sector, its content-owning aspirations are less clear.
Of course the same could be said of Microsoft in the 1990s. After all, it owned Expedia, Slate and CarPoint, among other online content sites (it later off-loaded all three, saying it was not in the "media" business). In fact, everything detractors said about Microsoft then could be said about Google now: "Arrogant," "Doesn't play well with others," "content-hungry," "controlling."
"My guess is that Google is not done redefining what it wants to be, and part of that includes being a huge content company," Fay says. "Think 'one-stop-shop' combined with 'no rules.' It would not surprise me if Google turned around and acquired Viacom. Seriously."
With regard to media auctions, Fay believes Google is dead serious, noting: "You can almost picture a scenario where Google begins to force-feed the auction model on both sites and advertisers. They haven't been known to act with a great deal of sensitivity to partners. Google's position in search has been all powerful. If you want to play in the search market, you have to work with them on their terms. Period. So why would they not want to try and recreate that scenario?"
But what does Google actually say? The company's oft-cited mission statement says the goal is "to organize the world's information and make it universally accessible and useful." But in an interview this spring with Wired online, Google CEO Eric Schmidt said people should first off think about Google as an advertising system.
"This is kind of a radical statement because Google has always been about organizing the world's information," said Greg Sterling, search analyst, consultant and author of the blog Screenwerk. "This is an admission that Google's focus is on advertisers."
In the same Wired interview, Schmidt calls attention to Google's display ad products - banner ads, video ads, click-to-call ads - and flags the company's interest in TV advertising. It seems clear that Google is looking hard for a foothold in display advertising - online and offline.
Yet while Google is placing its bets on all manner of media, Sterling doesn't see Google as a bogeyman: "Google's not going to take over the media world but it is very much disrupting the media world. It's very real ... They're trying to create an integrated advertising platform to reach a broad array of audiences."
Too, Sterling says, Google is bringing an expectation of greater accountability and improved targeting and tracking abilities. With the Web, the fact that targeting and tracking are possible, is causing the same expectation "to seep into these other [offline] media" vis-à-vis media-buying auctions. In effect, Sterling says Google wants to bring more utility and efficiency to the media marketplace.
"Look, if it weren't Google, it might be somebody else, but nobody would be quite as aggressive," Sterling maintains.
Agencies, understandably, remain wary. After all, any company that seeks, in some way, to usurp their role isn't taken lightly. In the Wired interview Schmidt concedes that when Google began talking to agencies, "they were not sure what their role was going to be. And, in some cases, we were at odds with them. That is all gone as best I can tell."
Schmidt goes on to say that ad agencies still have a role. "Somebody still has to produce the targeted ad, somebody still has to figure out what the demographic is. ... We certainly don't make the ads, and we're certainly not the creative people. All we are is a targeting mechanism. We're just a distribution channel. So we need these ad agencies."
"My general opinion is that Google is a friend," says Ed Montes, managing director of Havas-owned Media Contacts, which while not an ad agency, does work closely with Google. (Media Contacts is also conducting a test of an online media auctions platform with DoubleClick.)
Montes notes that to date, the majority of Google's successes are in the search arena. "The print, radio and TV products are all still in beta. While I believe Google will improve those products, I don't believe it will be the end-all market for those mediums. I don't think it will be the total market for display either. However, don't bet against them causing change in the purchase process or systems," he concludes.
Still, if Google is able to extend its paid search methods to other media, marketers are poised to benefit, Isobar's Fay says. "In an auction-based market, the buying side dictates what it will pay, and we can act more opportunistically in real-time to take advantage of traffic surges and shifting content," Fay explains. "We are already seeing many media vendors offer new kinds of payment options, including auction, cost-per-click and cost-per-acquisition."
Fay says that while Google's paid search auction model has worked well for small businesses, it's far from being a no-brainer where larger budgets are in play. "Most of the big search marketers turn to SEM agency partners to make the most of their search budgets, even though Google offers a full service solution right now, today," she says.
Furthermore, she says that marketers are wary of only going through Google for their paid search programs: "How can you ask Google to be your unbiased consultant when it's receiving the same money it's spending for you?" Fay asks, referring to DoubleClick's role in the Google portfolio. "It's simply a conflict of interest, and clients will have to consider carefully how close they become with a company that will be collecting a significant portion of their media dollars."
Automated online media auctions can't replace human capital, something agencies offer.
"I don't think that Google can really take the place of a true agency," Sterling says. Battelle concurs: "What increasingly is going to be very important for owners of content and agencies is the ability to add value at the human level. ... At the level of human relationships and at the level of conversation where only by sitting down in a room with a publisher who is a leader of a community and a marketer who wants to have a conversation with that community ... that can't be turned into an algorithm."
Further, Battelle says Google knows that agencies are good at figuring out "how to have conversations with marketers" and while "there's very little space in the online marketplace that Google won't try to own, it doesn't want to be The New York Times' or Boing Boing's high-end [ad] sales force." Sterling agrees: "I don't think Google wants to get into the business of replacing everyone in the value chain."
"The [media] auction is going to be another tool in servicing a client, another weapon for them," Battelle says, adding, "I think any time there's an opportunity for somebody to do something more efficiently and cheaper ... it's a positive."
Sterling says Google will encounter acceptance and success to some extent, but "they're not going to dominate every area that they enter. We're going to find that across non-Internet media, Google will find different degrees of success and varying levels of penetration, but what it will offer is a unified platform to manage campaigns across media."
With respect to content, Google can't be ruled out. Its schizophrenic behavior with regard to content mirrors that of Microsoft in the 1990s. The difference now is the media and Web landscape is far more complex.
"Google has some complicated ambitions as far as I can tell about content. They're willing to make certain kinds of investments in limited situations," Sterling observes, adding, "They create vehicles and containers for the discovery of content, like Google Finance, Video and others, but it's more about [facilitating] more structured information to create more utility in some areas." When pushed, Sterling, referencing YouTube, says, "I don't think they'll go out and buy more content companies."