Google Reshapes the Advertising World

Rarely has a company grown so fast and in so many ways as Google, the company whose mission is to organize the worlds information and make it universally accessible and useful. Since its founding in 1998, Google has grown into a company with annual revenues exceeding $16 engine attracted a loyal following among the growing number of Internet users and quickly became the number 1 gateway to the vast amount of information available online. More than 60 percent of online searches are done using Google and the companys name has become a generic term for conducting online searches on the Internet. While Google provides Internet users with a much better way to find information online, almost all the companys revenue comes from selling advertisements associated with search keywords. In 2000 Google launched a keyword-targeted advertising program called AdWords that uses short text-only ads to maintain an uncluttered page design and to maximize page loading speed. These text ads are identied as sponsored links that appear at the top or far right side of the search results page and are billion and a market capitalization of nearly $200 billioneven though it was not publicly traded until August 2004. Google was ranked as the most powerful brand in the world in a 2007 study by the leading global market research and consulting firm Millward Brown, with an estimated brand value of $66.4 billion. Very few, if any, companies have achieved such great success and reached iconic status as quickly as Google. Google was cofounded by Sergey Brin and Larry Page in 1998 while they were graduate students at Stanford University working on the problem of trying to improve the online search process. The system they developed delivered relevant search results by favoring pages that were referenced or linked to by other Web sites. Consumers fell in love with the simplicity of Googles search engine as well as the speedy, accurate results it provided. The Google search separated for clear user distinction. Online advertisers compete for the privilege of having their ads displayed with the results of a particular keyword search in a higher position than their competitors ads. Advertisers pay only when an ad is clicked (called cost-per-click or CPC), which in turn takes the Web surfer to the advertisers Web site. AdWords runs a specialized auction to decide which ads to show on the basis of (1) each advertisers CPC bid and (2) the advertisers quality score, which is a measure of the relevance of how well an ad matches a users search query. AdWords pricing system is designed to reward more relevant ads and keywords by showing them higher in the search results. Google does this by decreasing the amount that relevant ads must bid per click to beat their competition. This means that Google can display the advertisements that are the most targeted and relevant to

a Google users search query, which draws more users and click-throughs and thus generates more revenue for Google. In 2003 Google expanded beyond search-related advertising by launching contextual paid listings which appear on other Google content pages (like Gmail and Google Maps) or on the Web sites of companies with whom Google partners via the Google AdSense program. Site-targeted campaigns (ads that are designed to appear on particular Web sites) can be used to generate sales, but can also be designed to assist in the branding process by increasing awareness of a company or brand, while not necessarily generating clicks or traffic. Sitetargeted campaigns are priced on the basis of the more traditional cost-per-thousand-impressions (CPM) model rather than CPC. Advertisers set the maximum price they are willing to pay for every thousand impressions their ads accrue on the sites where they are displayed, regardless of whether a user clicks on the ad. Google has revolutionized the online advertising industry as well as the practice of marketing. The company has refined the concept of targeted advertising and taken it well beyond what conventional media can offer. Never before could you make your ad appear at the moment a potential customer was searching for your product. The simple text-only format used by AdWords allows marketers to try a myriad of variations and measure the results. They can see how many Web surfers click a text ad to get to their Web site, and then use Google Analytics to determine how many of those clicks result in sales or other conversions, as well as discern other useful information about visitors. This helps them assess the effectiveness of their ads and determine return on investment for ad spending something that is very difficult to do with traditional media advertising. Moreover, many small businesses that could not afford to advertise nationally or globally can now do so by using search advertising. The vast majority of companies are now allocating at least part of their marketing budget to online advertising, which has become 4

the fastest-growing category among advertising media. And no company is proting more from the increased spending for online advertising than Google, which has a 31 percent share of the market for U.S. online advertising revenue. Google is also expanding well beyond online search advertising and is broadening its offerings to marketers. In 2006 Google purchased the radio-advertising firm dMarc Broadcasting, which provides an automated system for purchasing radio advertising. The company has also been developing a Web-based ad-buying system for magazines and newspapers. In 2006 Google paid nearly $1.8 billion to acquire YouTube, which is the most visited Web site on the Internet, and in 2007 acquired DoubleClick, the industry leader in providing technology and services for placing ads on Web sites. In May 2007 the company launched Google TV Ads, an online platform for buying, selling, measuring, and delivering television commercials. Four months later Google entered into a partnership with Nielsen Media Research, the company that is the leader in measuring television viewing audiences. The two companies will work together to provide advertisers with more detailed and accurate information on how many people are viewing TV commercials on a second-by-second basis and who these people are. Google has also begun experimenting with new varieties of online ads such as a click-to-call service that allows people to initiate a phone call to an advertiser when a telephone icon appearing next to a text ad is clicked. Google has also begun experimenting with pay-per-action advertising: pay-per-action is a new pricing model that allows advertisers to pay only when specific actions that they define (such as making a purchase) are completed by a user on their site. This has been the dream of advertisers for ages: to only pay for the advertising that works. In addition to its advertising-related products, Google offers a variety of other popular Webbased applications and services including Gmail

and Google Earth. Gmail is a free Web-based e-mail service that generates revenue by displaying text ads from the AdWords service that are tailored to the content of the e-mail messages displayed on the screen. Google Earth is an interactive mapping program that uses satellite and aerial imagery that covers most of the planet. As marketers develop their advertising plans, many are meeting with Google to consider the various options the company provides for reaching consumers. Moreover, many traditional media, marketing, and technology companies are recognizing that they must now compete against the Google juggernaut. As noted in a recent Business-

Week article, Google is ground zero in a battle among traditional media and tech industry leaders and start-ups alike for the hearts and minds of the worlds consumersor at least their eyeballs and wallets. Perhaps even more telling is the comment made by a marketing executive who noted: Its Googles world. We just live in it.
Sources: Brian Stelter, In Foray into TV, Google Is to Track Ad Audiences, The New York Times, October 24, 2007, p. C1; Google Rises to the Top of the BrandZ Ranking with a Brand Value of $66,434 Million, Business Wire April 23, 2007; Robert D. Hof, Is Google Too Powerful? BusinessWeek, April 9, 2007, pp. 4754; David Kiley, Google: Searching for an Edge in Ads, BusinessWeek, January 30, 2006, pp. 8182; Kevin J. Delaney, Google Tests New Ad Offeringsbut Will Advertisers Follow? The Wall Street Journal, December 14, 2006, pp. B1, 3.