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Today Search, Tomorrow Ads?


Traditional media is so uncool these days that even Google (GOOG) feels bad about it.

Advertisers "overcorrected against the Internet" circa 2000 when they slashed online spending, says Tim Armstrong, Google's vice-president for advertising. "We see the same thing happening now with offline media." Google is trying to rectify this. The company that takes in $6 billion from cryptic online text ads is still testing efforts to sell Old Media ads.

The way this works is Google purchases space at a discount from newspapers and magazines and then resells portions of that space to the hundreds of thousands of advertisers that buy the search engine's online ads. Its first stabs at this, to put it as gently as possible, did not set the world ablaze. In late May a top Google executive said the company's initial bids to place ads in magazines were among the company's biggest disappointments this year. Previously, BusinessWeek's Ben Elgin reported that such efforts may have netted far smaller profits than the company is used to, if there even were profits. But Google is nonetheless readying another foray into ad placement in newspapers, perhaps this summer, with more papers this time than its first attempt. (Initially, such ads only appeared in the Chicago Sun-Times.) Another bid to crack the magazine ad code will follow. Later this year it will integrate its recently purchased radio ad-buying unit, dMarc (GOOG), into AdWords, its pioneering Web ad auction system.

Since print still struggles with slow growth, it's interesting that not all executives welcome a potential source of new ad dollars. "I'd do business with them again. But I have no illusions about what they are trying to do vis-à-vis my business, which is take it over," says a senior magazine executive who has worked with Google. "They want to be the central clearinghouse for advertising for everyone."

The potential side effect this executive fears is that Google eventually undercuts magazines' existing relationships with advertisers by offering them cut-rate deals. Whether this fear is realistic or ridiculous, it nevertheless echoes how established media often views tech-driven newcomers. If this becomes Google's universe, what happens to the rest of us?

"GOOGLE HAS A near-religious belief that its digital [ad] bidding platform will be used for all media," says Jordan Rohan, a managing director and Internet analyst at RBC Capital Markets. But "outside of search, their batting percentage is pathetic." Like another behemoth, the one called Wal-Mart (WMT), Google cloaks ambitions to mediate a substantial chunk of the economy beneath rhetoric about obsessively focusing on the customer, or, in Google's favored techie parlance, the "end user." And Armstrong, unsurprisingly, is careful to downplay Google's ad ambitions in traditional media. "This is not a zero-sum game," he says. "We would love to be one of the winners."

Google's ad pitch is aimed at the geeks in the audience, because it's all about data. The click-through patterns on Google's familiar online text ads allow advertisers more or less real-time means to monitor ad effectiveness -- better messages get more clicks -- and thus various messages can be flung into the marketplace to find which works best. (Google-ites note that offline ad messages can be tested online and then moved into other media.)

The idea is for this to be transposed into Google's play for Old Media ads, although now it requires manually entering reams of data about where, when, and what kind of print ad ran in what kind of publication. Non-geeks may find this all eyeball-glazing, but at a time when every company expenditure is scrutinized ferociously, a pitch like Google's finds a ready audience. The big question is whether the ad world can give up its beloved ways of soft science -- the easy currency of relationships and massive expense accounts -- for a new world of hard data and ultra-accountability. If it can, there's one big player with an awful lot of data on its hands.

For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia

By Jon Fine


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