April 3rd, 2007

Google’s Core Competency Does Not Translate To Offline Media — But That May Work To Google’s Advantage

by

What is Google’s core competency? I would argue that it’s harvesting the value from massively scaled, complex human activity, i.e. millions of websites linking to each other and hundreds of thousands of advertisers bidding on key word and experimenting with ad creative, clickthrough rates, and conversion rates. The other critical element of this core competency is a natural feedback loop, e.g. the “relevancy” of a search results page or an online business’ cost of sales through paid search advertising.

The reason that Google has struggled to apply this core competency to offline media, i.e. magazines, newspapers, and now TV, is that these media lack both the scaled of activity and the natural feedback loop that enables Google to create efficiencies by harnessing these market dynamics.

If you read Google’s press release about its new TV ad system, it’s clear that they are aiming to pump as much feedback data and activity into the system as possible:

Advances in set-top-box technologies make it possible to report aggregate statistics on how many times an ad was viewed and whether it was watched through to the end. As part of this trial, we will be working with partners to use aggregate, anonymized set-top-box metrics to deliver timely and accurate viewing reports. Advertisers can use this data to understand the effectiveness of their TV ad campaigns and use this information to provide more relevant ads to viewers.

The problem is that the “sensitivity” and “specificity” of the data and the scale of activity (i.e. number of advertisers using the system and the number of bids per advertiser) don’t even begin to compare to what exists in search. First, the number of advertisers who will be able to create video ads is likely to be dwarfed for some time to come by the number of advertisers who have created text ads. Second, the ability to track, at the individual user level, the performance of each text ad for each keyword AND, critically, the ability to track that individual user’s behavior on a site AFTER they click doesn’t even begin to compare to “aggregate statistics on how many times an ad was viewed and whether it was watched through to the end.”

The irony here is that Google is running in the completely opposite direction with its cost-per-action advertising program, which provides the ultimate feedback loop.

Back in the days of mass marketing of mass products, i.e. when everyone was a potential customer, TV was an immensely efficient medium because reaching everybody was the objective. As consumer audiences and product target markets fragmented, TV became more and more inefficient, to the point where the entire system is now propped up by the inertia of deeply entrenched economic interests. While Google will no doubt introduce greater efficiency into the TV ad sales system, it will have the net effect of driving money out of the system.

Of course, if that money is driven into the more efficient online marketing space, Google will ultimately be the beneficiary — perhaps the whole foray into offline media is all a strategy to crush the competition from other media by completely disrupting each medium’s core advertising market, and thereby freeing up those dollars to flow into Google’s online coffers.

Rather than create new money-making machines, wouldn’t it be far more efficient for Google to find new ways to feed the one it already has?

  • "Rather than create new money-making machines, wouldn’t it be far more efficient for Google to find new ways to feed the one it already has?"

    Come on, Scott. That path which you deem so wise would not lead to total world domination by a pack of benevolent geeks.

    And that's what we all really want, right?

    Sam - "I think Google’s core competency is as you describe, Scott, but specifically applied to the internet."

    Which does raise the possibility that Google is preparing for the full extension of the Internet to the offline world. And that's already begun on every level in ways that we're already taking for granted. Hook the two together and the whole world becomes a platform for content and advertising. Fully integrated, fully distributed.

    Personally, I blame the cyberpunks for all this.

  • Great analysis, Scott!

    I agree with you on the over-arching deep macroeconomic issue you brought up here:

    The Internet is a massively more efficient a) communication medium and b) distribution medium.

    It just sucks money out of EVERYthing (or as Bruce Sterling said at SXSW, it just EATS EVERYTHING). Massive cost deflation for everyone [both content producers and advertisers].

    Gotta love it. Don't bet against the Net, folks!

  • Sam

    I think Google's core competency is as you describe, Scott, but specifically applied to the internet. That is to say - I think they are specifically devotees and students of the Web as a medium and actually couldn't apply the strategic competency you describe (aggregating massive user trends, extracting value from complex human activity) outside the context of the Web.

    I think that's an important distinction because it's not just that there isn't enough liquidity in some of these smaller markets like television advertising but that, culturally, they just don't get them. And it severely limits their ability to succeed.

    I think they backed into being an advertising company but it came as an afterthought. Their true mission has always been almost exclusively focused on enhancing the consumer's user experience on the web -- not brand building or supporting marketers in a traditional context.

    As they look for growth, they are stretching well outside their core competency and, thus, I don't have any confidence that they'll succeed. Save, perhaps, for some perfectly timed acquisitions.

  • Back in the days of mass marketing of mass products, i.e. when everyone was a potential customer, TV was an immensely efficient medium because reaching everybody was the objective.

    Another way to put this is that back in those days, TV was efficient because reaching everybody who could afford to own and watch a television set was the objective.

blog comments powered by Disqus

Subscribe

Receive new posts by email

Recent Posts