Will Google Own Content in 2010?

Posted by: Jon Fine on November 23, 2007

This week’s column is about what some execs perceive as a competition among the big players in online advertising and online ad networks—yes,: AOL, Google, Microsoft, Yahoo— for quality traffic, and how that competition and its related costs may ultimately invert long-held notions of how some of these players will react.

Specifically: There’s now a case to be made for Google (and, for that matter, Google’s competitors) to buy up content players. Or, rather, there will, be, once their monumental growth slows down and the competition for traffic becomes more costly than it already is. And it’s not aprticularly cheap right now, at least in some key cases. When expressed as a percentage of total AdSense revenues, traffic acquisition costs (which include fees paid out to content partners in its AdSense program) for Google dropped slightly in the third quarter of 2007. But they still totaled just shy of 84% of all AdSense revenues for that quarter.

As I say in the column, “content companies” can be defined much more broadly than “newspaper publisher” or “broadcast network” Three potential ideas of the kinds of things it could be not-crazy for someone like Google to buy:

—Weather. The Weather Channel, or Weather Underground. This is information every person in the world is interested in, and information that does not have huge content creation costs. (It does not take an army of forecasters to keep wunderground.com online. It does take an army of reporters and Web producers to stoke the engine of nytimes.com.)

—Yellow pages directories. This is information that can be collected via an entirely automated process. It also offers a powerful two-fer The information is content that’s a form of advertising—that you can sell more ads around. A big play in yellow pages directories can also jumpstart whatever Google (or Microsoft, or AOL, or etc.) is planning in terms of localized Web offerings, which is a potentially lucrative market that continues to thwart virtually all entrants.

—Bloomberg. The most complex of all of these, granted, and one that comes with significant content creation costs. But it’s also incredibly valuable information cherished by a particularly valuable kind of customer. Arguably its blue-chip content is still underleveraged, particularly on the advertising side, by the company’s current set-up—and don’t forget that its competitors are busy consolidating with bigger players all over the place, be it Reuters/Thomson or Dow Jones/News Corp.

As the column notes, Google’s culture in particular remains highly allergic to the byways of owning content companies, even Google continues to hire more and more execs from more traditional media companies. But circumstances eventually force many companies to do things that they once might have considered unnatural.

If you look at this form 30,000 feet, companies since time immemorial have gone for vertical integration when their industries have matured, and when there is increased competition for raw materials (There was a reason why newspaper companies eventually began buying up paper companies and, in some cases, forests.) Traffic is the ultimate raw material for a company like Google—and, as crazy as this sounds, there will come a time when the finiteness of quality traffic will become apparent.

Plus there’s history, particularly on the media side. “There are distribution channels, and there are content creators,” says one executive that I discussed this notion with. “:”Over time there is a constant ebb and flow of integration” of the two entities within individual companies.

Because, this exec holds, “there is no right answer” to whether or not content and distribution should commingle within a company—“there is only a growth answer.”

Reader Comments

Jim

November 23, 2007 6:35 PM

I think Google will own content. What’s really going to be interesting to observe in the next few years is the Gphone makes all media more ubiquitous, and how that ubiquity will impact company profits. That can benefit both consumers and investors. The NewsVisual article on Google’s Open Handset Alliance http://www.newsvisual.com/newsvisual/2007/11/google-and-moto.html implies that it’s really personal connections among business leaders that determine future success in the competitive marketplace. But consumers can also benefit from the new products those alliances spawn.

Don

November 25, 2007 6:09 PM

The valuation of content after the Salon.com disaster and others is a stickling point that I don't see anyone handling correctly, not even Google.

Marc Karasu

November 27, 2007 5:08 PM

How does one reach Jon Fine to send an email with a story idea.

I cant find his email address on this site.

Thanks,

Marc Karasu

Mike Reardon

November 27, 2007 6:56 PM

I see content creators, distributors and connectors as all there is, and the connector is still a massive profit centers not realized. A few years ago IBM Back Office Services were offered to the client with payment contingent on how much extra profit was gained by the IBM Back Office Service provided to the client company. No gain in profit to the client, no payment to IBM. Google still has that ability to become that direct service provider to retail with local search and connection. Your wifi enabled phone search will one day walk you into a store and introduce you to the clerk at the counter with the reason you want to be there before you even ask. That direct local connection service I think has not yet been fully envisioned as a profit center for any telecommunication provider. Google knows that last connector is still the most important piece of the shopping transaction and I think it will gain a shared of that direct introduction and sale far greater than page view ever had. I think this market still has enough profit that Google does not need to trouble with direct product creation.

Alex de Soto

November 28, 2007 9:00 AM

You mention a "job ads initiative" in your column. What else can you share about this. I find nothing online about it and I'm really curious.

Rich

November 28, 2007 10:54 AM

Google already bought one content company - keyhole, that provided imaging content for maps.

Jon Fine

November 30, 2007 6:08 PM

Alex:
The job ads initiative appears very nascent and while it's not denied, the details I have heard about it are very sketchy and the company is very secretive about it. (But that's natural for Google.) I do know of at least one person hired to work specifically on that project.
Jon

Sally

December 5, 2007 11:23 AM

There’s also more media consolidation happening on the Internet. Think of the media deal that occurred on Tuesday. Namely, Disney appears to be consolidating its hold over family-related websites. The NewsVisual article on Disney’s acquisition of iParenting Media http://www.newsvisual.com/newsvisual/2007/12/directors-at-di.html talks about how their Board of Directors can help the Management Team develop its new Internet properties.

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The media world continues to shapeshift as new forms arise and old assumptions erode. On this blog, Bloomberg Businessweek will provide sharp analysis and timely reports on the transformation of this constantly changing terrain.

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