Why did Google’s Offline Advertising Fail?
Why the promising foray of the Internet giant into TV, print, and radio advertising failed to support its diversification strategy
I was looking into several different business ideas during the past few weeks to potentially submit them as my idea for Startup Chile. I did not end up submitting any of my ideas, but I wanted to share some insights I found when I analyzed and researched one of my favorite ideas. I wanted to create an online marketing place to buy and sell offline media such as- radio, tv, billboards and print.
Investigating this business idea meant thoroughly researching the industry. I knew going into it that Google made an attempt at this business and I wanted to better understand why it did not succeed and look at the size of the opportunity. It was during this research process that I learned more about the underwhelming results of Google’s foray into traditional media, which was part of their strategy to expand and diversify their business from online media to offline media. The search giant had successes, sure, but these were overshadowed by failures. It is nevertheless an interesting story, one that I thought I’d share with those who have been wondering about doing the same thing.
In 2006, Google, led by then CEO Eric Schmidt, unveiled a multi-billion dollar strategy to diversify its advertising platforms, Google AdWords and AdSense. The strategy included rolling out these products beyond online media and Internet search to include three traditional forms, namely: television, print, and radio.
At the time, Google had already established leadership in the online advertising industry. But the company felt it was necessary to expand this stronghold to include TV, print (newspapers and magazines), and radio advertising because:
- It was a crucial step in building a CMO’s (chief marketing officer) dashboard or an online platform through which advertisers and marketers can promote products in any medium – online or offline. “We’re trying to get a simplified AdWords interface where the advertiser gets multiple channels,” Schmidt said. This meant enabling Google clients to either automate the allocation of their advertising budget across the Internet, TV, print, and radio, or to target times and regions for the placement of their advertising material.
- The diversification strategy was also likely a response to meet the expectations of its investors, who had built up Google’s stock valuation to more than $100 billion. (The company’s Initial Public Offering took place in August 2004 on Wall Street, with an opening price of $85 per share.)
Indeed, there was an opportunity for Google to leverage the technology behind its advertising platform in order to buy unused ad space – in TV, print, and radio – then sell these to standby advertisers at a significantly discounted price.
“Anything that would help move unused inventory for markets of any size will be seen as a positive…,” said Bill Stakelin, the former President and CEO of Regent Communications, Inc., now Townsquare Media.
Added an unnamed former Google executive who had been involved in discussions about the company’s proposed business diversification efforts: “Google executives would never say it out loud, but everyone thought that Google could make advertising (media-buying) agencies unnecessary.”
The appeal of Google’s platform to potential advertisers lay in the company’s engineering and technological capabilities – as well as in the discounted rates. This implied several advantages for Google:
- Google’s program was meant to target a specific segment of advertisers. This segment included small businesses, online retailers, and companies in remote locations that either did not have the ad budget to pay for original fixed rates, or which could not easily be serviced by bigger, more metropolitan publishers, broadcasters, or media agencies.
- “I’m hopeful the program will lower advertising costs in the print world,” expressed Bruce Telkamp of eHealth, an online insurance agency. “By aggregating a large number of advertisers, Google should get purchasing power.”
- The strategy also promised to position Google as a partner of sorts for print publishers and TV and radio broadcasters, many of whom saw how Google could develop a more effective way of selling unused space (or “remnant space” in industry lingo): by letting advertisers bid online for placement, with a self-service formula that would integrate a Web-based platform like AdWords and AdSense.
- Added Michael Lemke, who was representing The Seattle Times: “We have tens of thousands of advertisers we deal with face-to-face. They are talking about an exponentially larger base that can do business on a self-serve basis. These are clients that metropolitan newspapers have a hard time getting to.”
- Further helping Google’s cause was its large network of online advertisers, many of which had never bought traditional ad space, but would soon be able to using a single computer system.
Print: The Execution and the Players
Google began its non-search – and offline – diversification strategy in late 2005 and January 2006 by running a small-scale trial (called “Google Publication Ads”) in which the company sold ad space in print editions of 50 major newspapers. These included:
- The New York Times Company
- The Washington Post Company
Google started with newspapers because of the numbers: at the time, $48 billion were being spent yearly in the U.S. alone. “Print adds value the Internet doesn’t have,” noted Tom Phillips, who headed Google’s print operations. “It is a different browse-able reading medium.”
The New York Times gave an account of how the system worked:
To use the Google system, newspapers list the sorts of ads that are available, including the sizes, days of the week and sections. They will also enter what is known as the open rate — a sort of list price — for each type of ad.
Advertisers then can log into Google’s main advertising system, known as AdWords, and click to go to the newspaper section. They will see a list of the participating papers and the sorts of ads that are available. They can then enter a bid for a certain type of advertisement, specifying the section and date range. Newspapers in turn see these bids and accept the ones they want.
The system is not exactly an auction — the papers do not commit to selling any advertising space. They can choose to accept as many or as few bids as they like at any time. One reason is that the papers often do not know how much space they have available until the last minute, depending on the other news and advertising on that day. Moreover, the papers sometimes can add pages if there is a lot of advertiser demand.
In February of the same year, the company held a similar auction in which they bought then resold ad space in over 20 magazines, including PC Magazine, Martha Stewart Living, Budget Living, and Road & Track. The magazine market accounted for $12.8 billion at the time.
A report by Bloomberg Businessweek gave details on one of the highlights of the experiment: “Nicholas Longo, CEO of CoffeeCup Software, which makes tools for creating Web sites, wound up paying just $4,000 for each of three half-page ads in Martha Stewart Living. It was a long shot: The magazine’s rate card pegs the price of a half-page ad at more than $59,000.”
The rest of the results of Google’s print advertising efforts, however, were underwhelming. The fact that the company felt the need to extend the auction by several days made it evident that there was little demand from potential buyers. Moreover, a related Businessweek story reported that 8 out of 10 participating advertisers were “disappointed with the results and probably wouldn’t buy print ads through Google again.”
Why did this happen?
- Businessweek suggested that the print industry – while a lucractive market – “failed to meet Google’s lofty expectations.” The company also had difficulty breaking into the print advertising business without undercutting existing prices – and the small-scale trials didn’t even generate enough sales to make it worth expanding the program with bigger ad units. From the report: “Magazine publishers display ad prices on rate cards and typically give large marketers discounts from those rates. Publishers are reluctant to provide Google with bigger discounts than its best advertisers for fear of seeing rates collapse.”
- Google’s inability to lower the prices on print ads could be attributed to the very nature of print media (as opposed to the Internet). The production and distribution costs of newspapers and magazines made print ad space naturally more expensive than online ads, which meant that publishers couldn’t sell their ads to Google – even remnant space – for pennies.
- The Register offered another point of contention, one that had little to do with price talks: “… large advertisers (in print media) are used to a more cozy relationship with publishers than Google generally offers. Google customers are used to bidding online for placement… Google customers may be unused to the lack of feedback, when compared to the click-rates available with on-line advertising….”
Radio: The Execution and the Players
Following this failed initiative, Google apparently stopped updating the website that it had originally created for its print ad program – AdSenseforPaper. Still, despite – or because of – this disappointing initial foray into traditional advertising, the company devoted more money, people, and attention to the expansion of the program, this time via “AdSense for Radio”.
- Eric Schmidt described AdSense for Radio as “essentially the integration of the dMarc Console and management tools into our advertising network.”
- Schmidt also told Forbes.com that more than 1,000 people would work on Google’s radio advertising efforts, which would be facilitated through a modified version of the Google AdWords placement platform.
- Bill Figenshu, the chief operating officer of Softwave Media Exchange – a rival of dMarc Broadcasting – revealed that he had been in talks with people who disclosed that Google was in talks to buy $1 billion in radio ad space from the San Antonio, Texas-based Clear Channel Communications, Inc.
Reuters reported that Google – led by 24-year astrophysicist David Friedberg– would begin testing a version of the AdWords system for the radio market by the end of 2006. With the dMarc acquisition, it now had a new radio ad distribution channel for its advertisers.
- This channel automated the task of transmitting advertising material to radio stations, as well as of scheduling them and tracking when they ran.
- To increase the sales of radio stations, Google let advertisers bid on slots based on the performance of the ads, instead of on the number of listeners the ads were expected to reach.
- Google did have competitors as it made its entry into the industry. Bid4Spots, a Newmark Advertising subsidiary, was holding a weekly online auction of unused radio ad space at the end of each week – space that, when filled, would be broadcasted the following week. In this last-minute selling of spots – a kind of “reverse auction” – stations competed for the advertising budget by offering remnant space at the lowest cost per thousand. Soft Wave Media also leveraged its Remnant Radio software and Web-based program to sell radio ad slots to more than a dozen New York stations, as well as a network that included Citadel, Clear Channel, and CBS Radio.
The news of Google’s unexpected entry stirred a wide range of reactions from the radio broadcast industry (which had generated $19.5 billion in revenue in 2005).
- Meanwhile, former Bear Stearns senior media analyst Victor Miller said that the Google-dMarc partnership would indeed attract new interested parties who wanted to buy advertising. He pointed to a “new world order” in radio, and suggested that the development to watch out for was whether Google would continue to sell remnant ad space or expand to compete with the rep firms, which had exclusivity over national ad sales.
Google, however, did not even come close to reaching that point of competing with national rep firms. Like its print auction program, the company’s radio advertising venture soon fizzled. On May 31, 2009 – less than three years since it began automating the buying and placement of radio ads – the company pulled the plug on the program. A Wall Street Journal report outlined the major reasons why.
- “Google misjudged the capacity of its technology to work beyond the Web, and underestimated the human side of the business. Radio stations refused to turn over airtime to a computer algorithm that set prices far lower than their own rates. Big advertisers steered clear.”
- Even though Google’s prices delivered substantial discounts, most of those who bought its ads were small businesses. Bigger prospects wanted the freedom Google refused to give – the freedom, that is, to be able to determine which stations their ads would run on, instead of just station types and specific geographic locations.
- CEO Schmidt noted that while Google’s computers “can do the math really well”, there also wasn’t a good enough signal or an effective enough way to measure how listeners responded, or how each ad performed. In an official statement, the company expressed that it had “devoted substantial resources” to developing radio and print ads, but the resulting products “didn’t have the impact we had hoped for.”
- According to Daniel Hirsch, who was representing online retailer BedLounge.com, Google’s system also frustrated several advertisers because it refused to negotiate prices ahead of time, and instead effectively encouraged “impulse (buying).”
- Hirsch’s experience is only one of many that echoed what Interep’s Marc Guild had said, that it was important to “work with the total needs of advertisers, including creating strategic marketing plans that include planning, promotions, and event marketing. We (Interep) do not reduce our selling to a commodity business, which will ultimately be very harmful to both broadcasters and advertisers.”
- Added John Rosso – then ABC Radio Networks’ affiliate sales director – agreed that Google was unable to offer the creative advice and detail that advertisers typically expected from ad agencies and rep firms. “The success of local radio is helping your customers grow their business, which means you need to do more than just sell a quantity of spots to really effectively do that. It’s very consultative. You need to make sure you’re getting the right number of spots in the right dayparts and that the creative is done right and that the value add is there.”
- Google also experienced major difficulties in signing up bigger radio stations, which were hesitant to auction portions of their ad slots. These unresolved pricing ramifications were in part due to the company’s refusal to set minimum bids; but it was also a result of Google and dMarc not always agreeing on their strategy. According to the same WSJ report, “dMarc… advocated blasting the market with salespeople to push the auction concept, but also negotiating fixed-price packages and discounts that are more typical of how radio spots are usually sold. dMarc also asked for 50 new employees and submitted a long list of prospects, according to people familiar with the matter. Google favored hiring only seven or so new salespeople, and told the Steelbergs their candidates weren’t qualified….”
TV: The Execution and the Players
Undeterred, Google focused on its remaining toehold in traditional media advertising: TV.
The new system – called “Google TV Ads” – was, according to its head of strategic partner development, John Saroff, designed to attract “a lot of new demand to television.” He believed that advertisers who had never placed ads on TV – or even thought of pitching for it – would find the online-based Google TV Ads so much easier and cheaper to use. Mashable gave an account of how the system worked:
Using TV Ads is almost as easy as using Google AdWords: you do it all from a web interface in a couple of simple steps. First, you choose your target audience; then, you choose the networks, dayparts, and specific programs you want your ad to run on. Finally, you choose the cost-per-thousand impressions you’re willing to pay; and you actually pay after your ad airs on TV.
Of course, to place an ad on TV; you first need to have a TV ad; however, Google’s Ad Creation Marketplace provides you with the tools to connect with pros who will provide scripting, copywriting, editing, production and voiceovers for your ad.
There’s a sweet deal thrown into the mix, too; for a limited time, Google will cover the cost of creating your TV ad through the marketplace up to $2000…. To understand how huge this is, try and set up a TV ad campaign through any other means. Yup, it’s way more complicated than what I’ve just described.
The websiteforGoogleTVAds boasted of the system’s ability to “pick popular and niche programs across all dayparts without any forced program bundling.” It also offered advertisers the ability to “measure campaign performance and ROI with detailed next-day reporting.”
How? Google would use data it received from set-top boxes in satellite TV households then organize this data into metrics. Saroff said that while the information was anonymized, “it does tell us how many people are watching a given channel at a given time.”
Google began testing its TV ad system in 2006 by partnering with Astound Broadband to target 25,000 suburban San Fransisco households.
- In 2007, the company reached its first official TV ad sales deal with EchoStar (which then had 13.1 million satellite TV subscribers), enabling it to sell TV ad inventory from EchoStar-affiliated Dish Network’s several satellite channels, including ESPN, CNN, Discovery, Lifetime, Nickelodeon, and the Disney Channel.
- In August 2010, DirectTV Networks, a U.S. satellite pay-TV operator, joined the network of Google TV Ads, enabling Google to sell advertising inventory across all time slots in channels such as Bloomberg, Fox Business, Centric, G4, Current, Ovation, Chiller, and TV Guide. According to the company, the deal helped Google reach a base of 18.7 million satellite households.
- Other carriers and networks that Google reached an agreement with were the Game Show Network, Outdoor Channel, and CBS College Sports.
The Feats and the Flop
Google TV Ads is still ongoing: while it is not exactly an overwhelming success, the program nevertheless managed to avoid becoming Google’s third strike in its efforts to diversify into offline advertising media. Reviews from advertisers have also been mixed.
- Golden Gateway Financial’s chief marketing officer Bob Purcell lauded the system’s ease of use and flexibility, which allowed him to “buy a time slot as little as 24 hours before airtime. At his old job, booking a spot took weeks of back-and-forth negotiations between the company, its media buyers, and the networks.”
- Chris Henry of Next Step Enterprises, however, found little ROI value in buying TV ads from Google to promote his nail-biting cream. “I ran about (US)$1,000 worth of ads and I don’t think I sold $200 worth of cream.”
- Joseph Carrabis agrees. The founder of a marketing analytics firm called NextStage Evolution, Carrabis said that “the majority of people who watch ‘live’ TV are seniors; Most everybody else burns tapes or uses a Tivo or DVR.”
Whatever eventually comes of Google TV ads remains to be seen. And while Google’s foray into offline advertising has so far not produced as much as it promised, the company does not regret trying. “We’ve never shied away from high-risk, high-reward projects,” said Susan Wojcicki, a vice president at Google managing the company’s ad products. “We believe that making bets is not only in the best interests of our users and partners, but also important for our long-term success.”