Google’s Dominance of Search
Google has been consistently gaining share in the search market both domestically and abroad. Although the company is the clear leader in most markets, it has found the going a bit more difficult in some of the Asia markets, particularly China, Japan, and Korea. In these markets where Google has found it more difficult to operate alone, the company has established partnerships with local businesses (Sina in China and Daum in Korea). Google is expanding its sights to focus on the non-PC search oriented markets as well.
Display Advertising (DoubleClick acquisition)
Google acquired DoubleClick for $3.1B in cash in mid-April of 2007. DoubleClick provides ad-serving technology and online advertising analytics for online advertising and publishing customers. With DoubleClick, Google will be able to offer its customers an online ad solution for both their search and display advertising needs. Before this acquisition, Google’s ventures into the display ad space have been met with limited success. The established relationships that DoubleClick brings to Google will help greatly expedite the ramp-up of display ad revenue. With the display advertising market one of the more developed segments within online advertising, revenue opportunities will materialize for Google, should the company be successful taking share from competitors like Yahoo, AOL, and MSN. With Google’s existing success in the search market, the company should be able to leverage its relationships from sponsored search to drive up its market share in display.
Mobile Ambitions and the Android Platform
Google has stated it intends to bid on wireless spectrum in the 700 megahertz band. In an open letter to the Federal Communications Commission, the company discussed its vision of open access for this spectrum for wireless broadband and the potential benefits of such an arrangement. As a result of its interest in this spectrum, Google has set aside the minimum $4.6B to bid on this spectrum. This highly publicized move by the company has been frequently been misinterpreted as an early indication of Google’s potential foray in mobile phone hardware market. Despite the much anticipated Google Phone in the press, it is unlikely that this would fit into Google’s overall strategy. If the company were to actually produce a cellphone, it would be dilutive to margins and would bring Google into a hyper-competitive market where it would not have a distinct competitive advantage other than brand recognition.
Google and its partners launch Android
Google and its partners in the Open Handset Alliance announced Android, an open platform for mobile devices that is expected to be available on handsets starting in 2H08. The platform is a fully integrated software stack that includes an operating system, middleware, a user-friendly interface, and applications, and it will be licensed under a developer-friendly open-source license. Thirty-four companies have formed the Open Handset Alliance, which aims to develop technologies that will significantly lower the cost of developing and distributing mobile devices and services. The Android platform is considered the first step in this direction. Handset manufacturers and wireless operators will be free to customize Android in order to bring to market innovative new products faster and at a much lower cost. Participants include Motorola, Qualcomm, T-Mobile, China Mobile, Google, HTC, Samsung, LG, Sprint Nextel, Telecom Italia, Telefonica, Texas Instruments and NTT DoCoMo among others.
Implications for Google and other Internet Companies
This is a very early stage step in Google's wireless strategy. Their aim here, as with most of their moves outside of search, is to drive more online usage and thus more searches. By opening up mobile devices so that consumers can have a more "internet like" experience, Google is taking the network advantages that it has online and carrying them over onto the mobile platform. While Google will, at least initially, likely share a large percentage of the revenue that they generate back to the carriers in much the same way that they have with other online deals, over time we see Google accruing a significant portion of the value that is created in much the same way they have online.
The Mobile Search Opportunity
Various estimates suggest 300M PC units will be shipped in 2008 relative to the nearly 1.3B cellphones in the same year. With the nearly four-to-one ratio of cellphones to PCs shipped, the mobile market is clearly one of the more attractive platforms for online advertisers. Looking at the relative growth rates, cellphones unit shipments are also growing a few percentage points faster than PCs as well. Looking at the install base of the two markets, there are just under 3.6 billion mobile subscribers by 2008 and roughly 1.1B PCs in the same timeframe. In addition, commentary from Google management indicates that in certain markets such as China, there are actually more mobile searches performed than that conducted on computers. With cellphones often the platform by which users access the Internet in emerging markets, this clearly presents an attractive opportunity for advertisers such as Yahoo and Google.
YouTube and the Holy Grail of Video Advertising
Despite the measurable ROI from online advertising, many traditional ad executives have been slow, even reluctant, to shift their advertising spend to this medium. With the rise of broadband connections globally, publishers and online advertisers can now increasingly run rich media ad formats across the web. Eventually, rich media ads should transform into full video advertising, with 10-second or 30-second spots on webpages. Video advertising on the Internet is a format similar enough to television and cable-based advertising that makes it significantly more tangible and accessible for advertisers. YouTube has announced that it would begin monetizing some of its web traffic by allowing advertisers to place in-video advertising on certain video clips. These unobtrusive video ads would be shown in the bottom 20% of the video player after a certain point during playback and will only show in their entirety should consumers click on them. Google has initially set a $20 CPM for these video advertising units and over time, pricing could reach $40. Since the insertion of advertising in YouTube videos, Google also recently launched video units for AdSense. The company announced AdSense will now be able to serve video advertising units that streams relevant YouTube content to the site. These new units are accessible through publisher AdSense accounts and are currently only available to domestic-based online publishers with English sites.
Television Advertising (EchoStar)
Google has signed a landmark deal with EchoStar that would result in automated television advertising across the EchoStar DISH Network. The agreement calls for Google to establish an advertising system to purchase, sell, and measure television ads across the network that spans across all channels on EchoStar. The main upside to the Google television advertising platform is the targeted advertising that could be delivered to users. Despite the value proposition offered by EchoStar and Google, executives have been generally slow to adopt these new initiatives. Google has also signed an agreement with Nielsen to track audiences for TV viewing. Google will pay Nielsen to obtain detailed information on the demographics of the viewers and will help to supplement Google’s efforts already underway with EchoStar. Over time, Google should be able to provide this viewership data on a second-by-second basis. With the EchoStar deal already supplying Google with viewing patterns and habits, the Nielsen agreement helps unlock the other side of the equation, consumer demographics. By pairing the user demographic with viewing habits, Google will be able to serve more targeted advertising to viewers, something that is not currently a viable option on TV. For example, TV ad inventory is generally purchased by advertisers in a broad swath and is generally inserted into inventory slots without much targeting. However, with Google’s efforts to integrate demographic information and viewership trends, the company will be more successful automating better targeted advertising. For example, when a program about barbeque appears on the Food Network, under an automated system, Google can help the right advertisers (in this case, Kingsford for instance) reach their ideal audience.
Newspaper Advertising
Among the major sub-segments within advertising, one of the most challenged industries has been the newspaper advertising segment. Not only have viewership trends been on the decline in favor of other mediums such as online, ad revenue growth has also been difficult to achieve. From 2001 through 2006, ad dollars to the medium have expanded at a 2.2% CAGR in the U.S., meaningfully less than the 4.5% CAGR for overall advertising. According to the latest forecast out of Veronis-Suhler Stevenson, ad spending for the newspaper industry is expected to grow at a 1.6% CAGR from 2006 through 2011, below the 5.2% growth rate for the ad industry as a whole. Google first announced it would be entering the print advertising industry towards the end of 2006 and formally expanded its print program in July of 2007. The group of newspaper advertisers has now grown from 50 in November of 2006 to more than 225 by July and are all accessible through the Google AdWords platform. Over the coming years, Google should be able to grow its share in this medium as it presents an improved and automated experience. Ultimately, the introduction of an automated Google platform to purchase and sell ad inventory could help reduce the cost of sales at the newspaper companies. Around the same time that Google announced its partnership with various newspaper companies, Yahoo formed a consortium with a group of newspaper partners as well. The Yahoo deal, however, only encompasses the websites of the newspaper partners and will integrate Yahoo’s search monetization in addition to Yahoo’s local products on the sites. On the other side of the deal, the newspaper consortium will also be providing Yahoo with original content that can be used throughout Yahoo’s network. Overall, the uptake on the Yahoo partnership has been somewhat limited and has not yet contributed meaningfully to revenues. The same can be said about the Google partnership, but the opportunity will grow significantly over time as advertisers become more comfortable purchasing ad inventory through the Google AdWords service.
Radio Advertising (dMarc acquisition)
Google purchased dMarc in order to enter the automated advertising market for radio. The system allows advertisers to access radio ad inventory via the Internet and buy and sell inventory across various radio stations. Since the acquisition of dMarc, Google advertisers have been able to access this platform via their AdWords accounts. This radio advertising deal is very similar to what Google offers to Echostar advertisers. The opportunity in radio advertising lies in helping these radio companies reduce their cost of sales. Again, with Google helping to automate the advertising buying and selling process, radio companies should be able to reduce the amount of salespeople required to sell inventory.
Introducing the Google Advertising Dashboard
The ability for advertisers, marketers, and ad agencies to perform their media buying across various channels through a single platform will be the key driver for the success of the Google advertising dashboard. The ability for marketers and advertising agencies to control ad purchases from a single location across multiple mediums will drive significant leverage in the business model. Google’s ability to provide real-time (or near real-time) feedback on ROI and consumer viewing habits should allow for greatly expanded flexibility between advertising mediums in the future.
Thanks Credit Suisse Research, November 2007
Google has been consistently gaining share in the search market both domestically and abroad. Although the company is the clear leader in most markets, it has found the going a bit more difficult in some of the Asia markets, particularly China, Japan, and Korea. In these markets where Google has found it more difficult to operate alone, the company has established partnerships with local businesses (Sina in China and Daum in Korea). Google is expanding its sights to focus on the non-PC search oriented markets as well.
Display Advertising (DoubleClick acquisition)
Google acquired DoubleClick for $3.1B in cash in mid-April of 2007. DoubleClick provides ad-serving technology and online advertising analytics for online advertising and publishing customers. With DoubleClick, Google will be able to offer its customers an online ad solution for both their search and display advertising needs. Before this acquisition, Google’s ventures into the display ad space have been met with limited success. The established relationships that DoubleClick brings to Google will help greatly expedite the ramp-up of display ad revenue. With the display advertising market one of the more developed segments within online advertising, revenue opportunities will materialize for Google, should the company be successful taking share from competitors like Yahoo, AOL, and MSN. With Google’s existing success in the search market, the company should be able to leverage its relationships from sponsored search to drive up its market share in display.
Mobile Ambitions and the Android Platform
Google has stated it intends to bid on wireless spectrum in the 700 megahertz band. In an open letter to the Federal Communications Commission, the company discussed its vision of open access for this spectrum for wireless broadband and the potential benefits of such an arrangement. As a result of its interest in this spectrum, Google has set aside the minimum $4.6B to bid on this spectrum. This highly publicized move by the company has been frequently been misinterpreted as an early indication of Google’s potential foray in mobile phone hardware market. Despite the much anticipated Google Phone in the press, it is unlikely that this would fit into Google’s overall strategy. If the company were to actually produce a cellphone, it would be dilutive to margins and would bring Google into a hyper-competitive market where it would not have a distinct competitive advantage other than brand recognition.
Google and its partners launch Android
Google and its partners in the Open Handset Alliance announced Android, an open platform for mobile devices that is expected to be available on handsets starting in 2H08. The platform is a fully integrated software stack that includes an operating system, middleware, a user-friendly interface, and applications, and it will be licensed under a developer-friendly open-source license. Thirty-four companies have formed the Open Handset Alliance, which aims to develop technologies that will significantly lower the cost of developing and distributing mobile devices and services. The Android platform is considered the first step in this direction. Handset manufacturers and wireless operators will be free to customize Android in order to bring to market innovative new products faster and at a much lower cost. Participants include Motorola, Qualcomm, T-Mobile, China Mobile, Google, HTC, Samsung, LG, Sprint Nextel, Telecom Italia, Telefonica, Texas Instruments and NTT DoCoMo among others.
Implications for Google and other Internet Companies
This is a very early stage step in Google's wireless strategy. Their aim here, as with most of their moves outside of search, is to drive more online usage and thus more searches. By opening up mobile devices so that consumers can have a more "internet like" experience, Google is taking the network advantages that it has online and carrying them over onto the mobile platform. While Google will, at least initially, likely share a large percentage of the revenue that they generate back to the carriers in much the same way that they have with other online deals, over time we see Google accruing a significant portion of the value that is created in much the same way they have online.
The Mobile Search Opportunity
Various estimates suggest 300M PC units will be shipped in 2008 relative to the nearly 1.3B cellphones in the same year. With the nearly four-to-one ratio of cellphones to PCs shipped, the mobile market is clearly one of the more attractive platforms for online advertisers. Looking at the relative growth rates, cellphones unit shipments are also growing a few percentage points faster than PCs as well. Looking at the install base of the two markets, there are just under 3.6 billion mobile subscribers by 2008 and roughly 1.1B PCs in the same timeframe. In addition, commentary from Google management indicates that in certain markets such as China, there are actually more mobile searches performed than that conducted on computers. With cellphones often the platform by which users access the Internet in emerging markets, this clearly presents an attractive opportunity for advertisers such as Yahoo and Google.
YouTube and the Holy Grail of Video Advertising
Despite the measurable ROI from online advertising, many traditional ad executives have been slow, even reluctant, to shift their advertising spend to this medium. With the rise of broadband connections globally, publishers and online advertisers can now increasingly run rich media ad formats across the web. Eventually, rich media ads should transform into full video advertising, with 10-second or 30-second spots on webpages. Video advertising on the Internet is a format similar enough to television and cable-based advertising that makes it significantly more tangible and accessible for advertisers. YouTube has announced that it would begin monetizing some of its web traffic by allowing advertisers to place in-video advertising on certain video clips. These unobtrusive video ads would be shown in the bottom 20% of the video player after a certain point during playback and will only show in their entirety should consumers click on them. Google has initially set a $20 CPM for these video advertising units and over time, pricing could reach $40. Since the insertion of advertising in YouTube videos, Google also recently launched video units for AdSense. The company announced AdSense will now be able to serve video advertising units that streams relevant YouTube content to the site. These new units are accessible through publisher AdSense accounts and are currently only available to domestic-based online publishers with English sites.
Television Advertising (EchoStar)
Google has signed a landmark deal with EchoStar that would result in automated television advertising across the EchoStar DISH Network. The agreement calls for Google to establish an advertising system to purchase, sell, and measure television ads across the network that spans across all channels on EchoStar. The main upside to the Google television advertising platform is the targeted advertising that could be delivered to users. Despite the value proposition offered by EchoStar and Google, executives have been generally slow to adopt these new initiatives. Google has also signed an agreement with Nielsen to track audiences for TV viewing. Google will pay Nielsen to obtain detailed information on the demographics of the viewers and will help to supplement Google’s efforts already underway with EchoStar. Over time, Google should be able to provide this viewership data on a second-by-second basis. With the EchoStar deal already supplying Google with viewing patterns and habits, the Nielsen agreement helps unlock the other side of the equation, consumer demographics. By pairing the user demographic with viewing habits, Google will be able to serve more targeted advertising to viewers, something that is not currently a viable option on TV. For example, TV ad inventory is generally purchased by advertisers in a broad swath and is generally inserted into inventory slots without much targeting. However, with Google’s efforts to integrate demographic information and viewership trends, the company will be more successful automating better targeted advertising. For example, when a program about barbeque appears on the Food Network, under an automated system, Google can help the right advertisers (in this case, Kingsford for instance) reach their ideal audience.
Newspaper Advertising
Among the major sub-segments within advertising, one of the most challenged industries has been the newspaper advertising segment. Not only have viewership trends been on the decline in favor of other mediums such as online, ad revenue growth has also been difficult to achieve. From 2001 through 2006, ad dollars to the medium have expanded at a 2.2% CAGR in the U.S., meaningfully less than the 4.5% CAGR for overall advertising. According to the latest forecast out of Veronis-Suhler Stevenson, ad spending for the newspaper industry is expected to grow at a 1.6% CAGR from 2006 through 2011, below the 5.2% growth rate for the ad industry as a whole. Google first announced it would be entering the print advertising industry towards the end of 2006 and formally expanded its print program in July of 2007. The group of newspaper advertisers has now grown from 50 in November of 2006 to more than 225 by July and are all accessible through the Google AdWords platform. Over the coming years, Google should be able to grow its share in this medium as it presents an improved and automated experience. Ultimately, the introduction of an automated Google platform to purchase and sell ad inventory could help reduce the cost of sales at the newspaper companies. Around the same time that Google announced its partnership with various newspaper companies, Yahoo formed a consortium with a group of newspaper partners as well. The Yahoo deal, however, only encompasses the websites of the newspaper partners and will integrate Yahoo’s search monetization in addition to Yahoo’s local products on the sites. On the other side of the deal, the newspaper consortium will also be providing Yahoo with original content that can be used throughout Yahoo’s network. Overall, the uptake on the Yahoo partnership has been somewhat limited and has not yet contributed meaningfully to revenues. The same can be said about the Google partnership, but the opportunity will grow significantly over time as advertisers become more comfortable purchasing ad inventory through the Google AdWords service.
Radio Advertising (dMarc acquisition)
Google purchased dMarc in order to enter the automated advertising market for radio. The system allows advertisers to access radio ad inventory via the Internet and buy and sell inventory across various radio stations. Since the acquisition of dMarc, Google advertisers have been able to access this platform via their AdWords accounts. This radio advertising deal is very similar to what Google offers to Echostar advertisers. The opportunity in radio advertising lies in helping these radio companies reduce their cost of sales. Again, with Google helping to automate the advertising buying and selling process, radio companies should be able to reduce the amount of salespeople required to sell inventory.
Introducing the Google Advertising Dashboard
The ability for advertisers, marketers, and ad agencies to perform their media buying across various channels through a single platform will be the key driver for the success of the Google advertising dashboard. The ability for marketers and advertising agencies to control ad purchases from a single location across multiple mediums will drive significant leverage in the business model. Google’s ability to provide real-time (or near real-time) feedback on ROI and consumer viewing habits should allow for greatly expanded flexibility between advertising mediums in the future.
Thanks Credit Suisse Research, November 2007
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