Leave it to the English—famous for their superior fluency in the language that bears their name—to reach unparalleled heights of hysteria in the war of words being waged against Google. The Guardian’s Henry Porter claims that “Google is just an amoral menace: The ever-growing empire produces nothing but seems determined to control everything.”
Porter declares that Google is the world’s “most prominent WWM,” his acronym for the “worldwide monopolies that sweep all before them with exuberant contempt for people’s rights, their property and the past.”
Google is in the final analysis a parasite that creates nothing, merely offering little aggregation, lists and the ordering of information generated by people who have invested their capital, skill and time. On the back of the labour of others it makes vast advertising revenues – in the final quarter of last year its revenues were $5.7bn, and it currently sits on a cash pile of $8.6bn.
Let’s review Google’s 2008 Annual Report. Of Google’s 2008 Revenue ($21.78 billion), two-thirds ($14.41 billion) came from advertising on Google sites and just under one-third ($6.71 billion) came from advertising on Google Content Network (GCN) web sites (made up of publishers that sell their ad space to advertisers through Google AdSense). On this revenue, Google made a net profit of $4.2 billion after taxes. To put these numbers in context, Microsoft (Google’s closest peer) earned three times ($60.42 billion) Google’s revenue and produced 4.21 times ($17.68 billion) Google’s profit. Google’s revenue was just 0.1528% of 2008 U.S. GDP and its net income, 0.0294%.
So what does Google actually
create with all that revenue? The answer is free content and services.
First, Google cross-subsidizes dozens of its own free services—starting with its search engine but also including email, a free browser, YouTube, a word processing suite, IM, maps, news, and much more.
Second, as the world’s leading ad network, Google supports a significant percentage of the free content and services offered by others. In 2008, Google paid out $5.28 billion (24.22% of revenue) to GCN publishers—significantly more than the $4.2 billion Google earned in net income (19.3% of revenue). Continue reading →
Google’s new “Interest Based Advertising” (IBA) program represents the company’s first foray into what is generally called “Online Behavioral Advertising” (OBA): In order to deliver more relevant advertising, Google will begin tailoring ads delivered through AdSense on the Google Content Network (GCN) and YouTube.com (but not Google.com). This tailoring will be based on a profile of each user’s interests created by tracking their browsing activity across sites that use AdSense-but not search queries or other user information. Until now, (i) AdSense has delivered essentially “contextual” advertising by choosing which ad to display on a page based on an algorithmic analysis of keywords on that page; and (ii) Google has tracked users’ browsing only for analytics purposes-to limit the number of times a user sees a particular ad (to prevent overexposure) and to allow sequencing of ads in campaigns where one ad must follow another.
Google is sure to be attacked for crossing a “line in the sand” drawn by some privacy advocates between contextual and behavioral advertising-even though Google’s closest competitor, Yahoo!, already offers a similar program, and the concept in general is hardly new. Google’s position as the leading search engine and third party ad-delivery network will no doubt cause paroxysms of privacy hysteria among those who consider targeted advertising inherently invasive, unfair or manipulative.
But those whose first priority is advancing consumer privacy, not advancing a political or regulatory agenda, should applaud Google for excluding sensitive categories and for putting the new Ad Preference Manager at the core of the company’s new IBA program. The Ad Preference Manager sets a new “gold standard” for implementing the principles of Notice and Choice, which have formed the core of both OBA industry self-regulation and the various regulatory proposals made in recent years. Indeed, Google has done precisely what Adam Thierer and I have called for: giving consumers more granular control over their own privacy preferences by developing better tools.
Continue reading →
Jerry Yang’s departure as Yahoo! CEO opens the door to a renewed bid by Microsoft to buy Yahoo!’s search business (or Yahoo! itself). Such a merger could produce a significantly stronger challenger to Google in the search market. With this possibility in mind, the WSJ just ran a fascinating history of the “paid search” 
business—the placement of “contextually targeted” ads next to search engine results based on the search terms that produced those results.
In a nutshell, Microsoft failed to see (back in 1998-2003) the enormous potential of paid search—just as small start-ups (such as Google) were starting to develop the technology and business model that today account for a $12+ billion/year industry, which is
twice the size of the display ad market and which supports a great deal of the online content and services we have all come to take for granted online. Microsoft first put its toe in the water of paid search with a small-scale partnership with Goto.com in 1999-2000. But this partnership failed because of internal resistance from the managers of Microsoft’s display-ad program. In 2000, Google launched Adwords and thus began its transformation from start-up into economic colossus. By 2002, Microsoft realized that it needed to catchup fast, and approached Goto.com (by then renamed Overture) about a takeover. But Microsoft ultimately chose in 2003 not to buy the startup because Bill Gates and Steve Ballmer “balked at Overture’s valuation of $1 billion to $2 billion, arguing that Microsoft could create the same service for less.”
Microsoft, meanwhile, spent the next 18 months deploying hundreds of programmers to build a search engine and a search-ad service, which it code-named Moonshot. The company launched its search engine in late 2004 and its search-ad system in May 2006.
But Microsoft’s ad system came too late:
Advertisers applauded Moonshot for its technical innovation. But Microsoft had trouble coaxing people to migrate to its search engine from Google; advertisers were unwilling to spend large sums on MSN’s search ads. By building a new system instead of buying Overture, Mr. Mehdi says, “we really delayed our time to market.”
What’s most fascinating about the piece is that it seems to suggest that Microsoft missed its opportunities to get into paid search not because it was “dumb,” “uninnovative” or a “bad” company, but for the same sorts of reasons that big, highly successful and even particularly
innovative companies fail. The reasons companies generally succeed in mastering “adaptive” innovation of the technologies behind their established business models are the very reasons why such great companies struggle to encourage or channel the “disruptive” innovation that renders their core technologies and business models obsolete. Continue reading →
The NYT reports that Google has recently disclosed in an SEC filing that it had 1 million advertisers as of 2007. Some analysts suggest that Google’s growing scale will lead to higher ad prices:
Ben Schachter, an analyst with UBS, said he expects the current number is likely to be between 1.3 million and 1.5 million. Google declined to comment on the current size of its advertising base.
“It is a number that people have wanted to know for a long time,” Mr. Schachter said. More advertisers means more revenue — and more revenue, on average, for every search query — for a couple of reasons: a larger number of queries will have ads matched against them; and on popular queries, competition for placement will be more intense, and as a result, ad prices, which are set by auction, will be higher.
But is Google’s success really driving up ad prices? The same piece also notes that:
Interestingly, each advertiser, on average, spent a little more than $16,000 a year on Google. That figure changed little between 2003 and 2007.
As one of the commenters on the piece noted:
If average advertiser expenses hasn’t really changed in the last 5 years, maybe Google’s argument that it’s not a monopoly because prices are determined by ad auctions, not Google’s search share, holds some weight.
Meanwhile, Google Watch notes Microsoft’s recent success in signing up Verizon, Dell, Sun and Hewlett-Packard as partners for Microsoft’s Live Search engine and asks whether Google’s success is driving potential partners into Microsoft’s arms, as Microsoft appears to be working harder to gain market share for its own search and advertising products. So can Microsoft—and Yahoo!—regain momentum?
Perhaps 2009 will bring some answers to these questions—and more hard data about ad prices. But whatever happens, it’s a safe bet that speculation and fierce argument will abound with every new development in the search/advertising wars.
A number of TLF readers seem to have leapt to certain conclusions concerning political ads shown on the site. Most recently, Garrett Dumas responded to Sonia’s post Obama vs McCain: Who deserves the tech vote? (which generally sides with McCain) as follows:
Perhaps you think this because there is a John McCain banner on your site? The “tech vote” is a non issue as it is not up to the president or his cabinet to determine the future of technology. It is market driven and whoever controls the market, controls the direction.
Garrett’s understandable confusion merits a brief explanation. The only “banner” ad on the site chosen by us is the “Crispy on the Outside” blog ad at the top right. The ads below that are placed there by Google’s “AdSense” program, which automatically decides which ads to place on a page based on how much advertisers have bid for keyword combinations that appear on that page. TLF readers will see a mix of political ads on our site until election day from both campaigns and a variety of other groups targeting keywords that appear on our blog. For example, I currently see the following ads on our blog: Continue reading →
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.