If you read about Google’s recent plan to sell ads in newspapers and wondered whether you were seeing things, don’t feel bad. More than one person probably came away from the announcement this week thinking: “Why on earth would the world’s most powerful on-line player be interested in a boring, old-fashioned business like newspapers?”
The short answer is that while Google made its name as a search engine, it now makes virtually all of its money from advertising. As far as the stock market is concerned, in fact, Google isn’t really a search engine or Web portal company — it’s an on-line advertising machine. Advertising revenue currently accounts for about 90 per cent of the cash Google generates.
In order to keep growing at the kind of rates Wall Street has become accustomed to, the company has to keep finding new sources of ad revenue. There’s no shortage of Web pages, obviously, but Google is always looking for new — and high-quality — sources of advertising that can expand its reach beyond simple Web ads.
While the newspaper industry is struggling (in part, ironically, because of the Internet) it is still a gigantic player in the advertising market, with more than $48-billion (U.S.) spent on newspaper ads in the U.S. annually.
Google’s hope is that it can help newspapers appeal to new print advertisers, and make better use of their unsold ad space, and that all that newspaper real estate, in turn, will help Google diversify its advertising base and bring in new customers for its Web business.
That hunger for new advertising “inventory” was almost certainly a driving force behind Google’s recent $1.6-billion acquisition of the video-sharing website YouTube, and other recent expansion deals as well.
At the moment, the vast majority of Google’s ad revenue comes from on-line advertising — the ads that appear on Google search pages after you do a search, and the ads that appear on millions of Web pages. Google’s search algorithms ensure that the ads you see are as relevant as possible, and therefore more likely to lure you into clicking on them and buying something.
In addition to the YouTube acquisition, Google’s $900-million advertising deal with social networking site MySpace is another sign of the search company’s desire for ad inventory. MySpace has between 60 million and 100 million registered users but until recently very little advertising. The battle over that resource saw Google triumph over both Yahoo and Microsoft.
The move into print, however — which Google will be piloting with 50 major newspapers including The New York Times and The Washington Post — takes the on-line company out of its traditional area of expertise. The algorithms that Google relies on to power its on-line ad engine are developed by tracking every page view, click and transaction that results from those clicks.
But how do you track a newspaper ad? Page views are nowhere near as easy to track in a paper as on the Web, nor is there any click-through to document. And Google can’t use the pure auction model it uses on-line because newspapers are terrified of losing control of the price they charge for their ad space.
A previous attempt by Google to move into print — in this case, magazines — was widely viewed as a failure. Late last year, the company started a trial project that saw it attempt to sell ads into a dozen national magazines such as Car and Driver, but the response was lacklustre at best. It is continuing the program, but has not said it will expand it.
Print isn’t the only new arena that Google is trying to conquer. The company is also working on an advertising strategy aimed at the radio market, a business it moved into when it bought a radio advertising agency called dMarc Broadcasting in January. So far, there have been only a few small trial projects involving radio, however — nothing like the nationwide campaign Google is undertaking with newspapers (a radio initiative is planned for next year).
If Google can make its entrée into the newspaper business work, it will have proven its ability to cross the boundary — or rather, to eliminate the boundary — between the on-line and off-line worlds, not to mention extending its dominance in the advertising game. If it doesn’t work, of course, the company will have to be content with merely ruling the Internet.
