I was coming back from a vacation, when I spotted the cover of the Fortune magazine “Is Google Over?”. I could also see the Google logo melting into oblivion (http://ht.ly/2uofz).
Can you imagine the effect such a cover can have on me, a CEO of a search marketing company? Can a week’s vacation change the world so much? Will I ever be able to afford a vacation again? I wondered...
A quick gulp of the article brought my heartbeat back to normal. Although the article is well-researched and well written, I believe that the author is missing the big picture of what Google is trying to achieve. He has failed to understand how different entities in the Google network end up creating a multiplier effect rather than only adding up. I strongly believe that Google’s best years are yet to come.
Let’s first define “What is Google” – an easy answer would be, “It is a search engine”; my take is “Google is the closest man has reached to creating a mind reading machine and understood how to leverage the same to make advertising more effective.” This has not only helped Google become the world’s largest media company, but also made its market cap greater than the combined market cap of NewsCorp, Time Warner AOL and Disney – the world’s second, third and fourth largest media companies, respectively.
When Larry Page and Sergey Brin were evolving the advertising platform for Google, it seems the focus was on removing the flaws of conventional advertising, namely lack of measurement, rate card based pricing and the inability to serve advertisements based on intent/ context. And boy, were they successful! The Google AdWords platform has proved itself to be the most effective advertising platform ever created in the history of mankind.
The global advertising market is estimated to be in excess of $500 billion. Google currently has less than 5 per cent share of that market. One of the reasons why Google has failed to capture a larger share of this pie is because in its quest to remove flaws of conventional advertising, it had earlier failed to replicate the benefits of conventional media into the Google Advertising System – the ability to deliver frequency, duration of ad unit exposure, and lastly, the ability to deliver engaged advertising units as delivered by TV.
Over the past few years, Google has developed products and acquired companies to fill this lacuna. Today, remarketing allows Google to deliver frequency, while YouTube allows Google to deliver duration through TV-like advertising units while maintaining auction based pricing, measurement and ability to target intent and serve ads based on a context. The question Fortune asks “Will Google be able to deliver a new product that will deliver the next 20 billion dollars of revenue” – probably not; however, if the question asked is “Will the combination of Google, YouTube, Ad Mob, Double Click allow Google to capture 5 per cent more of the global conventional media advertising spend or power a share of conventional advertising through Google platforms? The answer seems to be “Yes”, as I don’t see any other company on the horizon better poised than Google to do so.
The foundation of Fortune’s article is that the Core Business of Google is search – I believe that the core business of Google is advertising. It is Google’s ability to “Identify context and serve ads on a real time basis through an auction system” that makes it the world’s most effective advertising platform. This ability could allow Google to power advertising on print, radio outdoor and TV. Once you expand the concept of the core business of Google, it suddenly makes it media agnostic and makes the potential market size exponentially larger.
I believe that all of Google’s products and acquisitions are helping it position itself for gaining a dominant share of the world advertising market. Below are some thoughts that indicate that Google shall reach its goal.
Google may lose the battle, but win the war: Although, as Fortune puts it, being a “Cash Cow akin to being a former supermodel”, the last year has shown Cash is King – Google has the potential to dominate the $500 billion advertising market; as Vince Lombardi had said: “In great attempts, it is glorious even to fall”. Failure helps gain you experience, but costs money – the $30 billion war chest of cash being a $6 billion per year cash cow will allow Google to lose a few battles, but win the war.
Advertising Revenues Potential from Small and Medium Scale Businesses: In all the developed countries of the world, more than 80 per cent of Google’s revenue comes from SMBs, while in the emerging markets such as India, less than 20 per cent of Google’s business comes from SMBs. A strategy shift and a few acquisitions such as India Mart/ Just Dial could help it get on course to tap the SMB market of India and replicate the strategy across different emerging markets of the world.
If Google wants to tap the SMB market of emerging markets, it needs to change the self-service model of Google AdWords. Let me elaborate. I remember Shailesh Rao (MD, Google India) narrating an incident to me that he was in a conference room with Larry Page and the projector/ Internet did not seem to work. Larry got down on his knees and went under the table to try and sort out the problem. Compare that with my brother (an SMB in India), who may send the fax the next day because his secretary has gone home. Most SMEs in emerging markets have always had help even for the smallest task, such as getting a photocopy. Can we really expect them to use the AdWords self-serve platform? Google needs agencies that will help these SMBs use AdWords, and ensure it is rewarding enough for these agencies to continue to service them. My talks with Sridhar Seshadri (the person responsible for SMBs in India) seem to indicate that Google is heading in the right direction.
Advertising Revenues Potential from Large Enterprises: As a corollary, less than 20 per cent of Google’s revenue comes from larger enterprises in most developed countries. Now, with platforms and networks such as YouTube, Double Click and Android, Google is able to offer a branding opportunity to large advertisers. Google’s ability to deliver reach, frequency and duration of advertising unit exposure has already made it popular amongst savvy enterprise marketers. It is a matter of time when all the other larger organisations start allocating larger spends to the Google network. Google has now started working with agencies as their partner; this would also contribute to large enterprises allocating more budgets to the Google network.
Superpower of Inexpensive Computing: Identifying context and serving ads on a real time basis requires humongous amount of processing power. Google owns and operates the largest and the most efficient server farms in the world. For any other company to become a real threat to Google, they will not only have to replicate an auction based real time ad serving platform, but also operate it at efficiencies at which Google operates it currently.
Thwarting the threat from Facebook/ Twitter: The Fortune article states that Facebook has 16 per cent share of the $9 billion display market. However, that is time share rather than revenue share. Facebook and Twitter will have to face an uphill battle on privacy, advertising inside user timelines before they become serious contenders to take advertising dollars away from Google.
Google’s ‘You Write, I Monetise’ Strategy: Unlike other media companies of the world, where they own content, Google’s strategy of helping publishers to effectively monetise content rather than create own content makes it more resilient to change in consumer preferences. I was pleasantly surprised to find that Eros Entertainment’s India YouTube channel has more than 300 million channel views. Just imagine the advertising potential of all the world’s publishers combined.
Current and Future Acquisitions: Internet users are closing on the 100-million mark and mobile phones have reached 500 million even in a place like India. It is a matter of time when the Internet and mobile shall become as ubiquitous as electricity. Would it be safe to assume that Internet and mobile advertising could become 20 per cent of all advertising globally? (Internet advertising is already 20 per cent of all advertising in the UK market). Acquisitions of YouTube, Admob, Double Click, Android and 75 others (http://en.wikipedia.org/wiki/List_of_acquisitions_by_Google) have not only led Google to dominate online/ mobile advertising, but, as discussed, acquire a share of conventional media advertising spends.
Having said this, let me add that yes, Google shall go through pains that most companies go through when transitioning from a high growth company to a growth company, while keeping their focus. However, saying that it is over for Google is like telling a teenager that just because he has got a few pimples, his girlfriend won’t go to the prom with him.
In summary, Google hardly has 5 per cent of the total advertising pie today; it is the multiplier effect of all the above factors that make Google the contender to exponentially increase this market share and eventually dominate global advertising. My I-Banker friends who were thinking of selling Google stock after the Fortune magazine article, I hope my post changes your mind.
(Vivek Bhargava is the Founder and Managing Director of Communicate2, which has evolved into one of the largest search and social media specialist organisations in India.)