Google eyed

Having established Google Search as the world's most popular online search engine, Google is setting its sights on becoming one of the world's most powerful - and profitable - media companies.
Google eyed
By Aaron Greenwood
Tue 08 Apr 2008 04:00 AM

Having established Google Search as the world's most popular online search engine, Google is setting its sights on becoming one of the world's most powerful - and profitable - media companies.

Having survived the dot-com implosion of the late-1990s riding the success of its cannily-marketed and supremely powerful web search engine, Google has in the proceeding period worked aggressively to shore up its core asset by developing a string of hugely profitable advertising tools that leverage the core benefits of the technology.

The massive revenue generated by applications such as Adword - text-based ads that are co-located on the Google search results page - and Adsense, which enables online publishers to sell targeted banner ad space on their websites, has enabled the internet search giant to make a string of acquisitions of late, the most high-profile being YouTube in October 2006 for US$1.65 billion.

This acquisition in particular represented a coming of age for Google, marking its transition from search engine developer to fully-fledged digital content delivery provider.

The eye-popping value of the acquisition, which came just 18 months after the website was created by three former PayPal employees, served as a stark reminder that the heady days of the dot-com boom were well and truly back. It also confirmed just how far Google had come in terms of its position as a major player in the media industry.

Compared to its one-time rival Yahoo!, which was recently the subject of an unsuccessful $44.6 billion takeover bid by Google's looming arch-nemesis, Microsoft, Google has remained relatively immune to the volatility that pervaded the market long after the dot-com crash.

In a recent interview with Digital Broadcast's sister publication Arabian Business, Google CIO Douglas Merrill provided an insight into the company's corporate philosophy which sustained it through this tumultuous period.

"What differentiated those companies that survived the dot.com bust from those that didn't, was simply whether they were making money or not," he says. "One of the things which has always been true about Google is that we have always focused on users, and trying to serve users' needs. But this isn't some kind of hypothetical user's needs - we're looking at real things.

"For example, we didn't worry about stickiness and all these things that aren't actually real, we worried about adding real value [to our product].

"Whether the valuations were right during the [dot-com] bubble or not, I don't know, but the companies that created value are still around.

Google's growing sphere of influence combined with its shifting market strategy has made it a target of media critics and blogosphere conspiracy theorists alike, who single out its simplistic and cutely naive corporate motto of "Don't be Evil" for particular attention.

Indeed, the everyman myth promoted by such anti-corporate musings and the publicised vision of Google as the new world corporate underdog steered by a bunch of sneaker-wearing Gen-Xers is hard to sustain when the company's share price index is nudging US$750, as it did in November.

For all the ‘new age guru' and meek ‘hey dude!' banter spouted by its slick marketing department, Google makes no bones of the fact that advertising revenue not only sustains the online economy, but is the lifeblood of the corporation itself.

According to figures supplied to Digital Broadcast, 99 percent of Google's total annual revenue is generated by web-based adverts shown either on its own websites or those of its partner networks.

In the third quarter of 2007, Google's online operations generated $4.2 billion in revenue, of which $2.7 billion (65 percent) came from adverts that appeared on its own websites, with the remaining $1.4 billion (34 percent) generated by ads displayed on its partner network.

While critics have blasted Google's corporate mantra of "placing the interests of users first" as a cynical marketing ploy, the targeted advertising approach fundamental to Adword and Adsense has proven crucial to the company's success.

"Our belief is that online advertising must provide useful and targeted information," explains Sean Cornwell, Google's group European product marketing manager, who is responsible for launching new monetisation-related products and initiatives in Europe, the Middle East and Africa.

"It should be as useful as searchable information if it's delivered in the right manner. The proliferation of new content delivery platforms has created major challenges for marketers, in terms of ensuring their messages are relayed to specific sectors of the market.

"We employ a large software engineering team whose core responsibility is to develop new advertising products that engage consumers.

"Creating engaging content backed by a compelling message is key.

The company's acquisition of YouTube has also opened up a realm of new advertising and cross-promotional opportunities for the company, Cornwell says.

"YouTube is not just about videos; it's about fostering a sense of community among users," he says. "This lends advertisers opportunities to engage in a brand dialogue with consumers.

"Our research suggests that 47 percent more consumers find online advertising more engaging than TV commercials, which is impressive given the fact we believe the ‘killer app' for monetising online video advertising is actually yet to be discovered.

The most interesting aspect of Google's acquisition of YouTube - and the one fact that has often been overlooked - is the commercial opportunities it offers in regards to the company's Adsense video application.

Adsense video enables web administrators to include video content on their websites from YouTube partners who have signed up to the service, and just like the text service, the video is targeted specifically to match the content of a particular website.

Revenue generated by the spots, which include banner advertising embedded in video clips, is split three-ways between the content owner, the website owner and Google.

"Adsense is constantly evolving," says Cornwell. "Syndicating YouTube content opens up a whole new realm of commercial opportunities.

Indeed, if Google can tie down third-party copyright deals with content producers - including mainstream broadcasters - for the rights to webcast premium content via YouTube, the commercial opportunities could potentially dwarf those enjoyed by the company to date, particularly given the targeted nature of any advertising-related content.

Any such development could see YouTube and by rights Google launch a major raid on the traditional broadcasting sector, ironically with the support of progressive broadcasters themselves. Watch this space.
Generating revenue

Show me the money!

Google earns revenue from online and mobile advertising related to its internet search, web-based e-mail, online mapping, office productivity, social networking, and video sharing as well as selling advertising-free versions of the same technologies. However, advertisers don't pay the company simply to display ads - money only changes hands if the user clicks on the ad.

"I only make money if the advertisement is as useful to you as a search result would have been," explains Google CIO Douglas Merrill.

"I only win if the local economy expands - and so a lot of our advertisers don't actually identify Google [in terms] of their [overall] advertising spend. With most advertising budgets it's something you spend, but you have no idea what happens, as you're ‘building a brand'.

"When you advertise with Google, you know what happens and you know what returns [were generated], so actually they're counting it as a cost-of-sales.

It is for this reason that Merrill believes Google will not cannibalise the existing advertising market in emerging regions. As the total advertising spend increases in a region, there will still be room for traditional offline advertising - as well as high-Returns-On-Investment online advertising.

Emerging markets

Targeting the Middle East

While Google's short- to medium-term commercial strategy remains rooted in established markets in Europe, the US and Asia, the company is adopting a long-term approach to the emerging markets of the Middle East.

With internet penetration struggling to crack double-digit percentiles in countries across the region and online advertising spend estimated at just US$20 million per annum, this approach comes as little surprise.

However, the company has clearly stated its intentions in recent months, launching an Arabic-language version of its popular blogging platform in beta form and new improved versions of its Arabic-language translation tools.

Still, the most challenging aspect of gaining a commercial foothold in the Middle East is not the poor rates of advertising spend but the lack of available Arabic-language content, says Google MENA marketing manager Yasmina Brihi.

"There is very little Arabic content on the web today," she says. "When you compare it to other languages it's dismally low. Internet and PC penetration is also very low across the region.

Brihi says that as an emerging market, the Middle East has huge potential commercially and cites recent research which suggests that annual online ad spend could grow by up to 600 percent pa to 2011 or 2012.

"We are developing tools that will encourage the development of Arabic-language content," Brihi says. "Once we address these issues, then we can look at ways of generating additional revenue. We have been investing in this market for some time, both in terms of our workforce and products."

google apps

Head in the clouds?

As part of its strategy to tap new revenue streams, Google is positioning itself at the forefront of the long-mooted online data storage and networking revolution, via its Google Apps software suite.

Commonly referred to as ‘cloud computing', the proposed model involves a massive array of ‘cloud servers' hosted by third-parties providing users with potentially limitless networked data storage.

"The traditional notion of computing is based on users saving files to their hard drive," says Google Middle East and North Africa marketing manager Yasmina Brihi.

We believe there's a paradigm shift occurring whereby users will store their content online and access it via centralised servers. We really see Google as one of the pioneers in that arena. Each of these applications are being built on the internet and are being accessed by users independently of their hard drives.

"Google Apps is really the centrepiece of our Cloud Computing ambitions. The software suite allows users to create and store files online or edit them while collaborating with them with your colleagues over the internet."

To the layman, Google Apps looks suspiciously similar to a virtual Office software suite. Is Google shaping for a full-frontal assault on arch-rival Microsoft's turf?

"We don't see Google Apps as a replacement for Microsoft software," says Brihi, playing down the issue. "Microsoft makes great desktop applications. We see no conflict there. As a corporation we still use Word and Excel for instance.

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