drplokta

Google are and will continue to make a fucking fortune from advertising - pardon my french but this is just so so wrong. AdWords is pure gold. Notice that every new Google enterprise is just another excuse to serve more ads and add more data. They know exactly what they are doing.

The problem is they have stolen all the advertising revenue from the REST of the Internet - since targeted advertising backed by the entirety of the google db gets a clickthrough of 3 to 10 times other types of online ads depending what source you read. This is what is drivin the likes of Phorm - the rest of the Internet despertealy tris to get in on the Google cake and fails. It is also probably what is contributing to this desperate paywall gamble by the Times.

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What Google's done is somewhat similar to what Microsoft did. That is, Microsoft didn't focus on the Fortune 500 -- it focused on all business owners, or what I'll sometimes call the Fortune 2 million.

Google's done the same thing. They've taken the "tiny little ads" model of 1980s scams, and written it large. By having such a diverse base of customers, it means their exposure to individual ones figuring out ads don't work and walking away is vastly reduced -- especially compared to a typical newspaper, who have a base of no more than 2-300 customers, and only that big in a large metropolitan area.

"(T)argeted advertising backed by the entirety of the google db gets a clickthrough of 3 to 10 times other types of online ads depending what source you read."

Which means instead of 99.9999% not clicking through, as many as 99.9997 to 99.999 don't.

Whee.

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Yeh and that's how Google made c $24bn last year - pulling a lot of wool over a lot of eyes there, huh?

I somehow feel some reasonable percent of their advertisers will be auditing if Google ads are worth their money. Google may have a million tiny advertisers but they also have all the big ones. If it didn't work for them they'd desert and go back eclusively to TV or paper ads. Instead online advertising - mainly Google (70% acc to one article I quickly found, think is now higher) - is now the biggest sector of the ad pie, having overtaken at a ripping pace all other media in last couple years. Certainly in selling academic PGT circles not advertising via Google is now basically suicide.

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"Yeh and that's how Google made c $24bn last year - pulling a lot of wool over a lot of eyes there, huh?"

It happens. Enron had revenues of $101 billion in 2000. Lehman Brothers had in excess of $275 billion in assets under management and net revenues of $19.2 billion. And?

"Google may have a million tiny advertisers but they also have all the big ones."

Here's Nielsen's Top 10 advertisers of 2008 (the most recent time they've released such a list I can find). I realize it's anecdotal, but I can't recall ever seeing a Google ad from any of them.

And that's before we get into, if there's a strong correlation between advertising and revenues, why isn't the list of Top 10 Advertisers equal to the Fortune 10? The relationship appears to be random.

This report from the OECD in 2008 relays the report that Google's single largest customer is WPP (who own the Grey Group, Ogilvy & Mather Worldwide, Young & Rubicam, and JWT) but also that they have only about 1.5% of Google's sales.

Edited Date: 2010-05-25 09:35 pm (UTC)

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I'm too tired to get into this one in depth just now. I don't find unfounded anecodote very helpful(I can't say what ads I've seen on Google lately at all except those for cheap flights - cos i don't pay any attention to any of the others)and I think its obvious my noting Google makes a lot of money (and this rises year on year - 17% up last year) means people find it useful to buy their services - ie their ad serving - and continue to do so more than once. Google ain't complaining re profits and they run on ad revenue pure and simple. Everyone else trying to get ads online revenue (newspapers etc) is. QED. Google's business model works (however bad it is for privacy, another story)- the others doesn;t. When Google start charging for their search or mail services you'll really know online advertising isn't working.

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ps one more point - http://www.accuracast.com/seo-weekly/adwords-clickthrough.php seems to show classc long tail dis/n on click through - but for ads placed in first 2 pages clickthrough 8% to 0.25 (Oct 09 last year).Not so shabby & bears out everything i've read re targeted ads vs "ordinary" ones.

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...which is, itself, anecdotal, since it's unsourced.

Honestly, you're consistently using classic language from a bubble: "Millions of customers can't be wrong! Everybody's doing it! It's suicide if you don't buy in along with the rest of us! Somebody must be checking if this actually works (though not me, of course)!"

I keep waiting for you to say, "This time it's different!" just to complete the cycle.

Edited Date: 2010-05-25 10:49 pm (UTC)

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See below. No customer of Google is paying for anything other than ads. Google nonetheless makes very large profits year in year out. the salient feature of dot.com bubble businesses was they made no profits from their actual business merely if at all from hyped share prices and venture capital (I have made no ref at all to any valuation of Google by share price merely by reported PROFITS). Ergo, Google is not remotely fitting your model of a dot.com bubble merchant.

Edited Date: 2010-05-26 01:15 am (UTC)

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"Google is not remotely fitting your model of a dot.com bubble merchant."

Nowhere did I say that Google was anything as specific as, "a dot.com bubble merchant." What I said was, the language you're using to justify the premise Google is permanently robust is language that is common to all economic bubbles -- be it tulip mania in the early 1600's, the South Seas bubble in 1720, stocks/equities in the 1920's, stocks/equities circa 1990's/2000's, real estate in the 2000's, and gold today.

See, in general, This Time Is Different, Reinhart and Rogoff, 2009; Panics, Manias, and Crashes, Kindleberger, 2005 reprint; The Myth of the Rational Market, Fox, 2009. See the FT's Lex column of May 13th re: gold.

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You're fighting your own battle with shadows here fpr whatever reasons. I never said Google was permannently rich; in fact if you look at my reply to Dave below I agreed with hom on the EXACT OPPOSITE. Last reply: life's too short.

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"I never said Google was permannently rich; in fact if you look at my reply to Dave below I agreed with hom on the EXACT OPPOSITE."

To remind you of your earlier post:

"Google are and will continue to make a fucking fortune from advertising - pardon my french but this is just so so wrong. AdWords is pure gold. Notice that every new Google enterprise is just another excuse to serve more ads and add more data. They know exactly what they are doing."

Were you using "will continue to make" in some idiosyncratic way native speakers of English might not be familiar with? Do you have amnesia? Do you pursue arguments any which way, and hang the idea of rigor or consistency?

Because it's true -- you did agree with him on a statement that was the "EXACT OPPOSITE" of what you had earlier said. And this shows what, exactly?

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Google works for now.

But I'm with Hal on this, it's fragile.

I've done hundreds of business analysis for using advertising to fund operations and there isn't a single model that makes any money that I can find unless you have the shear volume of internet traffic that Google has. Google is making money from volume.

Adwords can work for certain types of business but I'm left wondering what the actual returns are in reality - as somebody whose name I can't remember once said - I know half my advertising works, I just wish I knew which half.

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Yes they're making money from volume; but only in the sense that they *have* the volume *because* they control the best and only db out there that will ever predict well what ads a customer *is* likely to respond to: because they have every search term you ever entered primarily plus all the data they glean from gmail, gst view, doubleclick etc etc. The whole point of Google is that this idea that we have no idea what ads the customer responds to is (a) not true anymore bcause G has the data to overcome that at AdWords level and (b) the nature of the attractiveness of the ad itself on the *customer site* isn;t their problem - all they want is click throughs (tho I believe that model is changing in web 2.0 if not on Google itself to click-through-and-place-orders. but at moment it's win win for them.

What you can't do is replicate that micro targeting for any other business that isn't Google, yes. Which is why I started this thread by saying Google was doing ok at this online ads business model and no one else was. Not because they're dot.com whizz kids (the salient fesature of dot.com bubble businesses was they had hype but zero actual profits - hardly true of Google which makes all its money, I repeat, from SELLING ADS - what it says on the tin as their business, not venture capital..) And yes when they aren't the overwhelmingly incumbent dominator of the search mkt, Google won't have that model right either (in the snes etheir db will become partial, like everyone else'), so in that sense yes they are fragile but in Eu at least that's a helluva way away.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1435105 explains some of why I had to swot up on this.

Edited Date: 2010-05-26 01:11 am (UTC)

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I'm less convinced that they actually target or predict all that well other than picking up on the specific words. I think success or what there is of it is actually based purely on volume rather than accuracy.

Adwords is really simple to run and really effective for niche businesses.

I'd argue that Facebook is actually a far far more dangerous enemy of Google's than anything else at this stage.

Where I agree with Hal is they are really throwing crap all over the wall trying to figure out how they can protect the business that works and ensure that nobody destroys their market.

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Agreed that FB is by far their most likely challenger for taking the advertising cake. Except FB have rather shot themselves in the foot lately. But that won;t last.

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"...they control the best and only db out there that will ever predict well what ads a customer *is* likely to respond to..."

I'll go along with "best," although that's damning with faint praise. Until such time as they get clickthrough rates above 50% -- which would be, you know, random chance -- any link between their actions and deliberate causality is speculative at best. If their predictions fail 92% of the time -- which, given the most charitable reading of the data you've presented, they do -- they are substantially underperforming random chance.

See Fooled by Randomness, Taleb, 2001.

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drplokta

There's at least one other model that makes lots of money from Internet advertising, and that's sites where the ads are the content -- property, car and job sites.

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We'd need to haggle over the value of "lots" that you're using and then move onto sustainability - I wouldn't start a business where the model was ad revenues from charging from content like that. Not unless I started with a bigger bag of money than I was planning to make.

Stateside Property is probably one where you could still do it, but the margins/charges on real estate sales in the US are mind bogglingly insane - Typically you're looking at 6% of sale price split between various sources. There's at least two Seattle startups who've managed to enter this market.

Jobs: I'll waggle my hand on that one. Based on the shear amount of advertising the "premier" jobsites are doing on traditional media they're spending a lot on getting more traction. Plus more and more recruitment is moving onto Craigslist where it's extremely commeditised.

Cars? Craigslist - at least for North America.

That's not to say that there won't be alternative advertising models, but if you think of one, let me know :) - trying to build a business plan that actually makes money for a startup which isn't blessed with a huge marketing budget is something that really really interests me.

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Certainly made you enough money to be the expert here, yes? :-)

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armb.livejournal.com

> somebody whose name I can't remember

John Wanamaker - http://en.wikiquote.org/wiki/Advertising

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