Blog Post

Citi Tech Conference: Google’s Armstrong On Stagnant Search, The Frenemy Questions, Mobile Ads

The state of search ads, the rise of display ads, issues with ad agencies and why does anyone need yet another browser are some of the topics Tim Armstrong, Google’s (NSDQ: GOOG) president, Advertising & Commerce, North America, is answering right now at the Citi Investment Research Technology Conference in New York. The webcast is here and highlights from the Q&A are below.

PC Search business: Over the next three years, will we have continued deceleration. Is it the law of large numbers or the economy? Definitely not, Armstrong says. He said there’s still a lot of headroom for search because Google still has a lot of the world to conquer. Plus, the improvements in quality that Google has released over the past few months will also show some lift over the the next three years.

Paying points: The major paying points that need to be addressed: complexity is one. There are a lot of offerings on the web today. A lot of companies spent the last four years getting “digitally certified.” The next is measurement and ROI. The third is education. A lot of customers want to know, speaking of the top 100 advertisers, want to know what sort of technology they need to own.

Ad solutions, online and off: Google gets asked why are you doing video? Why are you doing print? We have ability to cross-sell, but we’re not entering other spaces. GM doesn’t think about selling more cars via TV. They think about selling cars. The offline segments are still in the R&D phase.

The frenemy/foe situation: Armstrong was asked about the suspicions agencies harbor towards the company. The first phone call I made at Google eight years ago was to an agency. This is $20 billion industry. There are a group of agencies that took advantage of search early on. (He specifically cites Publicis Groupe). They aren’t calling us frenemies or froes. They’re calling us partners. Agencies do a critical job. They tend to cut across clients silos. And I think the amount of revenue Google makes from agencies are likely to rise.

What’s wrong with my current browser?: From a consumer innovation standpoint, browers tend to crash a lot. The second area is the use of apps. The technology of programming has changed since the other browsers have emerged. Hopefully, Chrome will help further developers work. And we also hope to make browsers better… $150 million spent by Google on toolbars. Is Chrome a source of savings? “I don’t think we looked at that. But since we’re starting with zero market share, we’ll see how things go.”

More from Armstrong on DVRs, YouTube’s poor resolution and more after the jump.

A Me-too solution to display ads: We have a large display business in AdSense. DoubleClick represented the ability to put a really strong platform under that. And I think it’s recognized that search and display are coming closer together. So it makes sense to have a platform that reaches across both. Would it be possible for Google to have 10- to 20 percent of all display ad business within three years? Armstrong said was ambiguous on expectations: “We’re in a good position to move marketing numbers from that perspective… YouTube is enough to move market share in today’s environment. In five years? I don’t know. But six months ago, we were uncertain what YouTube would be able to achieve. We’re more confident now.”

On mobile’s revenue potential: Citi analysts don’t think mobile will be a material source of revenue in the US this year, but perhaps in Asia. Armstrong: It all comes down to scalability. Will the iPhone grow more quickly? I think the non-iPhone analog devices will see search grow. Typically, we don’t scale all of our resources until we see movement on the consumer side. We’ve been selling ads on mobile for the last 18 months. You should expect to see more over time. But it took a number of years for search to get going, and it will be the same for mobile to pick up as well, from an ad revenue perspective.

DVRs’ macro-benefit: From an outside perspective, it looks like TV is doing okay. I think it’s beneficial for all digital platforms if creatives and broadcasters adapt to the changes brought by the DVR, particularly in terms of targeting. It will also have a macro-benefit for TV networks, as they put more shows on the internet.

YouTube’s video quality: Answering an audience member’s frustration with the quality of YouTube videos, Armstrong admits that yeah, it could be better. Sometime in the next year, he expects content producers to make better videos. It will happen naturally, as cameras’ technology improves, but it’s not something that YouTube will force. In any case, lack of high-resolution, at least right now, is not a constraint, either from a viewership or revenue standpoint.

Ad pullback?: No, Armstrong doesn’t see any retrenchment from the poor economy affecting advertisers’ spending. However, they might be experiencing “a pause” in general. As for search as a branding tool, it’s too early to tell if marketers are starting to view that format as a vehicle for anything more than direct response.