#501 - Week VI - "I'm Feeling Lucky"

Well, this week, after reading the "Secret of Googlenomics" (twice), I decided to focus on Google...

We saw in the Breeze session that digital advertising only accounts at this point for 16% of all advertising spend.  Of that 16%, 55% goes to Google, and 75% of all advertisement $ goes to search-based ads, not display ads.  Search-based ads are were Adwords comes in, as Adwords generate 98% of revenue at Google, says Eric Schmidt, Google CEO.

The Secret of Googlenomics


The highlights of the article for me were the following:
1. "Anything that increases Internet ultimately enriches Google"
2. "Selling ads doesn't generate only profits; it also generated torrents of data about users' tastes and habits..."
3. Revolutionizing ads pricing by using the second-price auction model - Like the folks at Heineken would say, "Brilliant!"
4. "The bids themselves are only a part of what ultimately determines the auction winner."  Whether it is fair or not (see Not everyone's a fan of Google), Google supplements the bid with a "quality score" which is determined based on the relevance to specific key words, quality of the landing page, click throughs and other things.  Theoretically, this should be a win-win: the users finds what he is looking for, the advertiser realizes a sale.  Does this give Google too much control?



Not everyone's a fan of Google


In his post on TechCrunch titled "Why advertising is failing on the internet" Eric Clemons ascribes Google's business model to "misdirection."  He writes: " Misdirection most frequently takes the form of diverting customers to companies that they do not wish to find, simply because the customer’s preferred company underbid."  This is certainly a risk, and this concern is likely one of the elements fueling the anti-trust charges Google is facing.

Google and Daily Deals Models

Another area Google has toyed with is partnering/competing with Groupon, or the "499" Groupon copycats as Andrew Mason reported to Matt Lauer this past January.  Indeed, the business model is very easily copyable, and many have.  I was intrigued, and googled the key words "Google Groupon." I uncovered some interesting information.  The first link I followed talked about the launch on July 19, 2011 of a "new deals platform" " named "Link, Like, Love" powered by American Express and Facebook.  You link your Amex account to Facebook, register for the deal, and the deal appears on your credit card bill in the form of a credit. (http://techcrunch.com/2011/07/19/160-year-old-american-express-out-innovates-google-and-groupon/) . Another link I clicked was a blog post on Wired.com introducing Google Offers, Google's daily deal site, in April 2011. (http://www.wired.com/epicenter/2011/04/google-groupon-2/).  The battle is heating up.  It appears all these websites are still primarily focus on large urban areas.  The areas closest to me served by Groupon are Springfield, MO, about 70 miles East on I-44, and Tulsa, OK about 100 miles West on I-44.  And yes, I signed up...

Google in the words of its CEO

The interview of Eric Schmidt by Charlie Rose was very interesting, though the link ended a few seconds past the 19 minute mark...  I also decided to explore the Google website a little.  I stumbled upon the Adwords new-user training video, where it explained a lot of the same things Schmidt and the article shared about how it works, and how to set it up.  I'm finally starting to understand...
First, I thought it was very interesting that Charlie Rose's line of questions paralleled somewhat the summary of findings of the "Future of the Internet III" by Pew Internet and ALP we saw last week.  Schmidt  agreed that "the mobile device will be the primary connection tool to the internet." In our lifetime, and I paraphrase, he recognizes that we've gone from a world of zero communication ability to nearly 100% communication, from zero access to references to access to nearly every resource ever created.  Spotify claims that it gives us access to every song ever recorded...  He also touched on the role of transparency, and the world's increased transparency in consequence of the development of the internet.  I liked his joke about working on a Politician BS Detector, cross-referencing anything they've ever said for consistency...  He also addressed what his intellectual property philosophy/model is, which is also one of the issues raised by Pew and ALP.  his stance reminded me of Pandora's Tim Westergren, where the royalties would flow straight to the right holders, on a per unit basis.
Second, Schmidt discussed Google on a more societal level...  He recognizes the proliferation of user-generated content, which we talked about in a previous blog.  He sees this content generation as a "defining expression of humanity."  He came back to that when later in the interview, he discussed the turn the internet and media in general is taking to make our experiences more "personal."  As more and more elaborate models are created to understand us, at the individual level, the more spot on the advertisement is likely to become.  Ads will be less and less an annoyance, more and more a help in finding what we are looking for.  As Levy writes, Page and Brin "also believed that ads should be useful and welcome - not annoying intrusions."
Finally, one cannot talk online business models without trying to figure out the monetization piece.  Schmidt describes a very simple tiered model, based on page views.  He proposes that 2 billion+ views should use ads to generate revenue, 2 million+ views should use micro-payments (a few cents per view), while highly specialized sites ought to use a subscription mechanism.  He does not give any details on how this would work, and the logistics behind a micro-payment model seem daunting...

All in all, this week has allowed me to become more familiar with Google, and the impact it has on the internet.  I do hope Schmidt is wrong on at least one point, namely that "great entrepreneurs break out early."