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Google… the OS for Advertising

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Traditional media companies are in a persistent state of confusion when it comes to Google. The question that keeps these media executives up at night is… is Google a friend or a foe? If recent conversations I’ve had with such executives are any indication, Google’s recent deals and initiatives (e.g. acquiring YouTube, selling newspaper and radio ads, etc.) have only served to heighten their frustrations to an all-time high.

From where I sit, the answer to this vexing question lies in one’s ability to foresee what Google is planning from a product development perspective. If you read through all the announcements and analyses about their recent deals and initiatives, it becomes clear that a common vision unites them all. Simply put, Google is building what is essentially an operating system (“OS”) for advertising… one that will work across all media.

Just like Microsoft’s Windows (or any other OS) manages all the hardware and software resources of a computer, Google’s Ad/OS will similarly manage all the critical components of an ad campaign, regardless of media type. But instead of controlling and allocating memory, Google’s Ad/OS will allocate ad budgets… instead of prioritizing system requests, controlling input & output devices, Google’s Ad/OS will enable ad inventory buying & placement… instead of facilitating networks and managing files, Google’s Ad/OS will optimize media buying across the spectrum & manage creative placement.

Google’s Ad/OS will be used to manage and buy ads at many of the top new media publishers like MySpace, YouTube, AOL, Ask, and Google itself, of course, along with hundreds of thousands of blogs. It will also be used to buy ads in the NY Times, the Boston Globe, the Washington Post, and all sorts of local papers owned by Tribune, Gannett and McClatchy… not to mention radio stations all over the country that are owned by Clear Channel and other radio conglomerates. And if Google executes on its plan, soon all the major broadcast TV and cable networks will join in to make their ad inventory available via Google’s Ad/OS.

So sit back and imagine that for a minute… the development of an operating system for advertising where anyone (from mom-n-pop stores to Fortune 1000 brands) can sit at their computers and slice, dice, & puree all their ad buys across web sites, newspapers & magazines, radio, and TV. Over $500 billion is spent every year advertising on these traditional media markets and Google is using its superior technological advantage to become a media-agnostic advertising platform.

Now, taking it from the top… if you were an executive at a traditional media company, would you consider Google a friend or a foe? As one media executive said to me the other day… “as long as they don’t develop their own content, we think we’re safe”. Hmmm, interesting. But it would behoove him and his colleagues to remember that Google’s core competency is to use technology in a manner that devalues and deflates traditional industries by extracting inefficiencies in existing processes. And the long-term strategic implications of this “Google effect” is much more disruptive than simple market realignment… rather, it’s an issue of rendering old core (human) competencies obsolete and replacing them with new ones reliant on automated, scalable technologies (much like what Wal-Mart did to retailing and what Craigslist is in the process of doing to classifieds). For instance, the only way for traditional media companies to leverage the core competencies they have today in order to compete with Google’s Ad/OS, in the long run, is to start breeding ad salespeople who will have the expertise and capability to sell across all media platforms. Sure, that’s feasible… when pigs can fly.

30 Responses to “Google… the OS for Advertising”

  1. As per my post:

    Ultimately, we can safely assume that one or more of the internet giants will successfully create an integrated advertising O/S. When that happens, the more interesting question then becomes:

    How would you compete with an Ad O/S, and disrupt that business model?

    One potential answer: You disintegrate the network and open it up. If Google (or Yahoo) becomes the Windows of the Ad O/S world, then what would the Linux of ad networks look like? Can one commoditize the mediation of advertising and shift value to the service providers around the network? Or put another way: Can the “Ad Network” be less of an operating system, and more like a free and open communication protocol? What would it take to create the TCP/IP of advertising on the internet?

  2. Most advertisers will NEVER trust Google (or anyone for that matter) to manage their budgets in the manner you describe. Look at the lack of uptake for something as simple as Google Tracking (Google Analytics). As an active participant in the industry, I can tell you that there is deep cynicism and distrust of all the ad networks, and especially Google, and nobody wants Google to know what their true ROI/ROAS actually is for fear that their “minimum bid” will “magically” rise overnight. This is a fundamental problem for any industry player that tries to close the loop from ads to visitors to sales to profits.

  3. The Google “OS” is built already. It is an auction-based ad-buying platform. Google is already delivering ads on WP, NYT and AOL. This market driven system is rooted in being able to extract value from the advertisement. That makes delivering contextual relevance the primary consideration for advertisers and networks. This is a win for advertisers and a win for consumers. It’s also a big win for Google in so far as they can keep expanding the inventory (content) they can deliver ads on.

    The human competencies will still be needed. Skilled advertisers and their agencies will be more important than ever now that it all resolves back to an ROI. And they do not want to put all their eggs in one basket. Advertiser can’t wait for Yahoo’s Panama to launch and only wish that MS would get their act together and provide a third viable auction based channel with volume.

    As far as content, there’s plenty of it and it is growing like weeds. Petabytes of content created by anyone and everyone. It’s all searchable and you can always be connected to it. Google doesn’t own any of it.

    So I think the two questions to Media companies are, why would you give this inventory/content to Google (imagine if Fox stopped YouTube from accessing MySpace vids)? And, why are you not building your own auction-based systems (see Amazon)?

  4. Thank you, everyone, for the great comments… particularly to those of you who took the time to really think through the topic at hand and provide some excellent added perspectives. I wish I could respond to each comment individually, but I’m extremely pressed for time today (as are all Fridays). Thanks again.

  5. Interesting perspective. I had come to a similar conclusion, but looked at it in terms of content distribution channel consolidation versus an advertising OS. I like this analysis, and it strengthens Google’s position even more. From my perspective, it is not Microsoft and Yahoo! that are the “competitors”, but rather someone like News Corp. (the Fox/MySpace parent company). They have way more to loose than the online guys. The TV/Print/Radio/Satellite distribution networks & content providers have owned the advertising channel and most content production for years. Along comes Google and they build a more efficient ad processing/ management engine AND access to cheaper content – User Generated Content(UCG). YouTube gives them both additional consumers of advertising AND a really cost-effective way to create content that millions of people want to consume. The beauty is that they paid a one time production fee for it, rather than paying writers, producers, actors & cameramen for every episode. Very smart.

    Social networking is about UGC. We are social and creative. We need interaction, not just stuff pushed at us. I think Google & News Corp. understand this. So the Google/You Tube purchase makes perfect sense. I’d be watching out for News Corp. to buy Yahoo! or Ask. It puts them in the game with Google. The traditional media giants will not “go gently into the night” and they already have ad sales organizations and the human network to cross all but the interactive channel. Don’t count them out of the game, yet.

    As for mobile, Web content is available to smart phones & Pocket PCs right now. Carriers are scrambling to build an advertising network. I don’t think they can catch up fast enough. Sprint appears to be the only one who is actually buying into the other channels. Everyone else is doing the marketing partnership thing, which doesn’t provide the economies of scale need to compete with the giants. Location, device and user information is now available over the Internet (that’s what my company – 509, Inc. does), so the carrier walled-garden approach to Web access will eventually crumble. When it comes to data (and arguably voice with VOIP “mobile” is just another content distribution channel. How we connect to all these channels differs, but content is content – we all just pick our favorite kind.

  6. I think your take on this is very persuasive, Robert. Another huge dimension to add to the picture is the rapidly growing Mobile Web. This will be soaking up an increasing part of the advertising budget. Google is very well positioned to be the enabler in this very challenging new dimension.

  7. If this really is their strategy, then why did they buy YouTube? Or start with Google Video in the first place? If they can power all these video platforms through their advertising OS, then why have your own platform competing to your potential partners?

  8. Thanks Tomo for that passionate input.

    Yes, almost everyone has universally recogniseed that IP will be the next generation network (NGN) of the future (see efforts in ITU-T, IETF, country deployments, etc). Yet, IP still has to run over a physical infrastructure of routers, cables, fibre, satellite, radio waves,etc. The Infonetic report (linked to on GigaOM front page today) shows that publicly owned wireline and mobile service providers in North America, Europe, and Asia Pacific spent a combined $192.8 billion on capital expenditures in 2005, and are projected to increase their capex 5% to $203.1 billion in 2006.

    So whilst deployments of wi-fi in Mountain View could arguably be said to be lots cheaper than traditional network today, Google will still have to make substantial investments to build this “global village” network which it then will give away for free (don;t forget spectrum licensing costs, right of way costs, labour costs etc).

    Why else will they be actively lobbying (using Vint Cerf) for Net Neutrality on the Hill if they are planning to roll out their own “global village” network.

    I could not be more excited about the vision you draw out and would be happy to be such a user. Will excitedly watch out to see if you are right. (over the last 20 years being in this industry of promises though, I have yet to see anything of this like happen, for a variety of reasons).

    On the other hand, I also see how they have mastered the web 2.0 like no other entity and this is where they have somehow mastered the OS of monetizing free content and services in this so-called new media.

  9. @ tomo…great post, not just because I agree with it – very perceptive!

    @ Robert…so will there just be one Ad/TV/Media company then…that will go down well with anti trustlwas :)

    I think it may be a “Ford v GM” thingy, with Google doing the Model T ads.

  10. Ted Avery

    Google is taking advantage of the fact that all radio stations have a large amount of unsold commercial inventory. That costs these stations money.

    If this “experiment” works as well as I think it will that excess inventory will become a thing of the past. Google already bought all of Clear Channel’s excess. I’m pretty sure that’s what the $1billion dollar purchase was.

    It’s a win win for Google and the broadcasters. Also, at the end of the day, if this allows the stations to shrink their sales staff they would be more than happy to do that. I’m sure a lot of people will lose thier jobs over the next few years. The same thing is happening to radio DJ’s due to automation, Voice tracking and syndication. Broadcasters are becoming more efficient across the board. I feel bad for the employees.

    It might be a good time to pick up some radio stock.

  11. Your views are intriguing. I read this post with eyes of an ad salesman. When new tech services and strategies evolve, new skill sets are required. I don’t think I agree with you when you imply that sales people won’t be able to effecitively sell across all media. Sure, most current ad sales reps don’t know the intracacies of all media, but I think a Google Ad OS would enable such capabilities. I feel that ad reps that have had experience selling in different media (online, radio, print) will become much more valuable than those dinasours that have developed deep personal relationships with a few clients in one medium (i.e. TV). What do you think? What skill sets will be powerful for sales people in a Google Ad OS world?

  12. Dee Brown

    Google has to move very quickly to see this vision through. I would imagine the next set of updates to Vista/XP will be the ones that enable advertising on the desktop. I foresee that Microsoft’s advertising api will be available to both web sites and desktop software. With the 100s of millions of desktops running Windows, Microsoft immediately has a larger advertising base and advertisers will opt to have their web site ads triggered on the desktop rather than through the browser window with its more limited capabilities for placement, interactivity, and richness.

  13. Robert, I think you are on to something and that is that IP connectivity is the new network in what has been known as media. It has the potential to replace print, television and radio in one fell swoop and that is why I believe google is going to offer free connectivity to the masses. bandwidth costs have fallen to a level that the advertising revenue more than subsidizes the cost of the network. i believe we are in the very early stages of a true ‘gloabl village’ as Marshall McCluhan called it. The cost structure for a traditional ISP like PacBell DSL..errr AT&T, comcast, etc to supply services to the residence is around $40 per month but trends downward as you grow because you get cost scale….at least in the network world, the more you buy the less it costs…wish power markets were the same :-)

    goog is placing a bet, and a very calculated one, that the revenue that can be produced from marketing to(advertisting) and selling or providing for free their own services to their future isp customers will more than offset the costs of a purchase. Kinda like how Urs, GOOG VP of Eng, has said that power companies would do themselves a favor by giving away computers because the money they can make selling the customer the power for that computer is far greater than the cost of the computers.

    what this provides them is an end to end solution for delivering customized content and adverting to each and every one of the people using their service. this delivery platform is alway on and knows where you go, what you type, where you live, who your friends are, what files you have downloaded, what you look like, and whatever else they add on to their services. So when Johnson & Johnson or GE or Proctor & Gamble or Coca Cola or Pepsi is planning their media buys for the next year do you think they’ll purchase advertisements on radio, television, print of the 4th network(Google)? based on the ability to target a specific population that has certain attributes you desire, the choice is clear…you pick google. Why? because you know that your marketing msg is going to a qualified prospect as opposed to the traditional ’shotgun’ approach. plus, you can get results in realtime and tweak your msg if its not working in real time. with the other three media you are somewhat ratholed into trusting some third party for ratings that may or may not even reach the people that you want it to. by the time you figure this out a slew of things can happen…some good some bad but why chance it when you don’t need to.

    At the end of the day, Google is building a traditional media killer and the funny thing is..actually not really funny but kinda, that the writing is on the wall but nobody seems to believe it. I do. @Home Network had this vision but couldn’t pull it off because the cable co’s couldn’t get their heads out of their rear to see the opportunity that was sitting right in front of them and there weren’t enough complimentary services like youtube, grouper, etc to make use of the connection.

    time will tell but if i’m a content producer where would i want my content to be seen? ex. let’s say you are the producer of CSI Miami and goog offers you the ability to place your content on their network so that it can be viewed by anyone, anywhere, anytime and offers a revenue share or some other creative structure around it such that you know your worst case scenario beforehand. simple choice right? sure abc or cbs might offer an upfront fee in the form of $$ per show but the audience is limited, the timeslot is finite and in order for someone to view it, they have to purchase cable tv or satellite or whatever whereas on the google network you content would be globally accessible and the broadband access which replaces the cable or satellite tv service, is free to the masses. additionally you can develop complimentary services that engauge your viewership such that you are able to really develop a community around you content as opposed to content around a community.

  14. Completely agree with the thought that Google is moving in on the video, rich media market and more traditional media services don’t have a lot of options to distribute your traditional media.

    After attending the NYC ad:tech conference, even Google didn’t talk much about innovative platforms and recommended me to talk to bus dev about thoughts there. If they are planning on creating a platform, its still at the corporate level.

    As a marketer, I agree that there’s a long way to go to create online platforms to manage statistics on a much more granular level. With the incursion of X-Box, DVR’s and streaming to TV combined with a targeted-consumer advertising model, the move is ready to happen in the coming years. Google may be able to create an option for that market, but they will need to move away from contextual ads and the core focus on CPA as CPM has value in the world from a branding standpoint as part of the $500 B market. There are a lot of marketing options to fill that void.

  15. Embrace the model, not the Google.

    Auction everything. Self-service everything.

    Google won’t add value in the areas where it cannot provide a targeting lift if the off-line media companies embrace the process improvements Overture and Google have introduced to the market.

  16. good post, though i’m not sure that OS is the right analogy…they are more like the ingram book group of advertising, with far less physical inventory but a set of universal standards that work with all systems and vendors…ingram even has acquisitions that now support the tiny independents helping them manage production for small channels (POD)…

    or maybe just the mitsubishi ‘insiderazation’ approach? as in, don’t just trade fertilizer – make it, trade it, and be the farmer, don’t just sell to the farmer…own the channel inside and out up and down stream…

  17. What is your opinion regarding Google’s move aggressively to buy dark fibre, build buildings for their own data centres around the world, rolling out a global VPN infrastructure, in addition to their advertising and consumer reach model? Especially with the recent launch of Wi-Fi in Mountain View, is Google attempting not only to take on the media giants but also the service providers of the world by building their own Google infrastructure which the Googlites of this world will use?

  18. Brion,

    Good question. It’s my belief that Google is upping the ante precisely to make it even more challenging for Y! and Microsoft to keep up. While traditional media companies and Madison Ave ad agencies may not like what Google is promising in terms of a cross-media Ad/OS, it definitely meets the needs of advertisers across the board. And at the end of the day, giving advertisers what they want will likely win their budgets.

  19. So, what’s your take on Yahoo or Microsoft ad services? If Google disrupts traditional media then the competition may come from other tech seeking to replicate Google’s formula (and at least take a share of the ad revenue pie).