Google's expanding ad empire
Google, flush with cash and full of overheated expectations coming from a frighteningly overheated stock price, is snapping up ideas, in the form of small companies, left and right. In doing so, it is trying to expand beyond its enormously successful base business, that is, selling ads on its search engine. Now the company is moving into the offline advertising business. Where it seems to want to become a one-stop shop for all advertising.
A recent Wall Street Journal article ("In Latest Deal, Google Steps
Further Into World of Old Media", 1/18/05) explains why: "Online advertising was a roughly $10 billion market in the U.S. last year, a small fraction of the more-than-$250 billion total ad market."
The latest acquisition is that of US-based dMarc Communications. This company, which works with some 4,000 stations, hosts an online service that allows advertisers to buy radio ad time interactively. It also schedules the ads and delivers them to radio's stations computers for automated play. That way, for example, ads can be run next to specific songs or simultaneously across several stations. All with little or no human intervention, and therefore lower costs. Depending on performance bonuses over the next few years, this deal could approach $1 billion. dMarc is also considering a move into TV advertising.
The services that dMarc offers make it possible for users to select a specific demographic, location, and time slot interactively. They pay by estimated listenership. They can track when the ads are played and can correlate it with customer calls and orders. They can pay for advertising online by credit card.
This approach is especially attractive in the emerging world of digital radio, where a multiplicity of tightly focused stations makes it possible for radio advertisers to target extremely specific audiences, and at a lower price than current FM stations. As a CNNMoney.com article ("Execs React To Google's Radio Ad Play, Try To Pick Up Signal", 1/19/06) notes:
Given Google's stated goal of linking its 400,000 advertisers more effectively to local radio ad markets, the geographic and market specificity of digital radio makes it an obvious value-multiplier. Digital radio also promises text display, ad rewind, and TiVo-like record functions.
As the WSJ article points out, Google's big advantage in moving into old media is that it already has enormous list of advertisers who use its services, over 400,000 companies form multinational oligopolies to mom-and-pop operations. In fact, many of dMArc's current customers are small businesses that would not have used radio advertising before. The idea is that Google can offer a one-stop menu of advertising choices and can negotiate favorable rates as a mass purchaser. Google has already started brokering print ads in select magazines, where a half-dozen small advertisers buy a section of one Google-bought page.
And that could hurt ad agencies bad. The biggest profit center of many advertising firms is not the creative work, but rather selling marked-up media time. Google's moves are unlikely to have an impact on the biggest advertisers and the biggest agencies, but they are going to make life harder for smaller agencies.
Google may also shake up the world of traditional advertising by bringing a level of accountability and measuring results. An article in NetworkWorld ("Google buys radio ad provider", 1/17/06) quotes one analyst's reading of the situation:
The deal could also be significant if Google successfully introduces to broadcast advertising its methods of tracking the effectiveness of online ad campaigns…. This would be a novel development in traditional media, where evaluating the performance of ad campaigns generally isn't done as accurately and scientifically as it is in paid search advertising.
